Preamble

The House met at Ten o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

LOCAL GOVERNMENT (MISCEL LANEOUS PROVISIONS) (LOCAL AUTHORITY VALUATION OFFICERS, LIMITATION OF FUNCTIONS AND CHANGE OF NOMENCLATURE, &c.)

10.4 a.m.

Mr. T. L. Iremonger: I beg to move,
That leave be given to bring in a Bill to make provision for any property owner whose property is threatened with compulsory acquisition by a local authority at fair market price to elect to have the fair market price assessed by an impartial district valuer employed by the Commissioners of Inland Revenue and not by an officer employed by the acquiring authority itself; to make provision for any officer who is employed by a local authority for negotiating and bargaining with property owners in his employers' interest to be styled a negotiating officer or, alternatively, a bargaining officer and not a valuation officer; and for other purposes.
The beginning of justice is that a man must not be judge in his own case. That goes for local authorities, too. Yet some of the greatest local authorities in the world—the councils of many British cities —laugh at this elementary principle.
The horrid business of the compulsory acquisition of the property of private individuals, sometimes necessary but always regrettable, is rendered far more intolerable by the way in which it is carried out in many of our cities today. Who does the assessing for compensation? It is the interested party—the buyer, the compulsorily acquiring council itself.
Most local authorities in a similar situation arrange for the valuing to be done by the district valuer. He is an employee of the independent Board of Inland Revenue and not the servant of the acquiring authority and according to the President of the Royal Institution of Chartered Surveyors, in a letter to The Times dated 29th April of this year, he is
therefore"—

and I emphasise the word "therefore"—
an impartial assessor…
How different with the local authority that uses its own valuation officers. Its valuation officers negotiate and assess. Few people know that such a state of affairs exists. Its existence was confidently denied by the President of the R.I.C.S., in a letter to The Times dated 18th May. Ought it to exist? There are pressures to be resisted, all on the side of parsimony. The good servant will always wish to please his master with a bargain in the market place and economy is equated with virtue by their employers, guardians of the public purse.
For example, speaking with the authority of many years' service as majority party chief whip on what was then the London County Council, the hon. Lady the Member for Peckham (Mrs. Corbett) stated in the House:
… Valuers… acquire land for … the council" and "negotiate to get the best terms" which they "arrange in the Council's interests."—[OFFICIAL REPORT, 20th February, 1962; Vol. 654, c. 283.]
Again for example, I quote from the judgment of the Lands Tribunal in the case of Ansaldi v. Stoke-on-Trent Corporation. The Tribunal said of the local authority valuer:
… it is desirable to distinguish his function from that of a district valuer, who is an independent official whose duty it is to assess value and advise ".
The local authority valuation officer acts, the Tribunal stated by contrast, as the local authority's
… agent, and he reflects the obligations of his principals to ensure that the ratepayers acquire property as cheaply as is reasonably possible".
Always there is the dreaded shadow of a possible surcharge by the district auditor on the wretched local authority valuation officer himself, if he is generous. None of these pressures operate on the district valuer.
"We are fair", cry the indignant local authority valuation officers with pathetic sincerity when their ambiguous position is questioned. I am convinced that these honourable professional men do their best to be fair, but unfortunately one must wonder who believes them. Certainly not the disappointed owner, ruefully comparing his offer with his own assessment of


the value of his home. He echoes Emerson:
The louder he talked of his honour
The faster we counted our spoons.'
This is terribly unjust and cruel, but can we really blame him? Justice may be done, but it is not seen to be done.
I quote from a letter which I received from a fellow of the Royal Institution of Chartered Surveyors, the head of an old-established and highly regarded firm of chartered surveyors:
Why is it possible to settle with the district valuer and never with…
the local authority valuation officer.
—without unpleasantness and a tremendous fight? In fact, I have called the county hall 'the den of the Forty Thieves'… I have come to the conclusion that all the affairs of The County Hall are governed entirely by politics and the word 'justice' simply does not exist.
That is not my opinion, and I quote it merely to show how responsible people are capable of feeling, much though I deplore their feelings.
This is a nasty situation. It is unfair to the owner, who may, perhaps, be forgiven for seeing the local authority's valuation officer as a hired assassin moving in to the kill. It is even more unfair, let us not forget, to the officers placed in this invidious position, and one of the prime purposes of this Bill is to help them.
Pressure apart, there is the question of efficiency. The local authority valuation officer is less well equipped to do an efficient job than the district valuer, who is automatically supplied with details of every property sold and every lease stamped in his area. Facts and figures reach him from the Estate Duty Office whenever probate is granted. The local authority valuation officer depends on Press reports of auction prices and records of his own past deals. He has no reliable gauge of the current trend of the whole free market. No wonder the compensation offered is so often so unrealistic. No wonder constituents of hon. Members come to them in tears.
To all such protests the orthodox answer is that owners can appeal to the Lands Tribunal. That is true, but life is not always as simple as that, as the monkey found when he closed his fist over the nut and then could not get it out of the jar.A dispossessed house

holder has to produce the cash for his new house, or lose it. For that, he must secure the compensation for the old one. He cannot afford the delay of an appeal. Such a man is often forced to accept less than he thinks right. Even when an owner finances the delay there is another deterrent; he may have to pay the costs of the appeal to the Lands Tribunal. Therefore, thousands of householders under the axe accept prices they consider less than "fair market value". Estate agents agree that these valuation officers drive hard bargains and that initial offers are low. On the books of a chartered surveyor and estate agent friend of mine is a case where, over 12 months, the initial offer almost doubled. Why, therefore, did it start so low?
Let me give an example from the Estate Gazette Digest of Cases, 1951–60, which reports 22 appeals to the Lands Tribunal against the L.C.C. In the 12 cases where the local authority valuation officer's final offer can be compared with the Lands Tribunal award the award bumped up the local authority valuation officer's offer on average by 80 per cent. I have quoted this figure in the House before, and it has not been challenged. Details can be found in c. 694–5 of Vol. 698 of the OFFICIAL REPORT. The Attorney-General is now investigating for me further evidence of recent cases.
A friend of mine, a Fellow of the Royal Institution of Chartered Surveyors —the one I have just mentioned—demonstrated to me from his files that his average achievement for clients who were victims of compulsory purchase order proceedings was to bump up the offer by 12½f per cent., but that where his clients could afford to wait and he could protract negotiations for a year or more, his average achievement was to bump up the offer 72 per cent.
It is doubly wrong that the property owner should be at such a disadvantage for, at the best, compulsory purchase creates an abnormal situation. The buyer knows that in the end he can take the property by force. Thus the healthy relationship of willing buyer, willing seller is disturbed. The council frequently does not want all that the vendor has to offer. Most of the vendors would prefer not to sell at all. The man who has spent £300 on his garden—draining


the lawn, paving pathways, building a wall and greenhouses—is appalled to find that he is not offered a penny for it. In a normal market, he can stay in his home, or stick out for his price. Need the acquiring authorities make bad worse by seeming to load the dice in their own favour? Let them hand over negotiation and assessment to the independent district valuers.
That we have compensation today based, theoretically, on "fair market value" is due to a revolt by Conservative Members, of whom I was among the foremost, against the Socialist legacy of grab-and-don't-pay. There are still some ends that need tidying up, and this will require legislation.
I offer this little Bill as a humble and, I hope, helpful contribution. It makes, according to the Long Title
… provision for any property owner whose property is threatened with compulsory acquisition by a local authority at fair market price to … have the fair market price assessed by an impartial district valuer employed by the Commissioners of Inland Revenue and not by an officer employed by the acquiring authority itself …
It also makes
… provision for any officer who is employed by a local authority for negotiating and bargaining with property owners in his employer's interest to be styled a negotiating officer or, alternatively, a bargaining officer and not a valuation officer ߪ
I think that this would be of immense psychological benefit to both parties, particularly the unfortunate professional men whose embarassment I feel so sorry about. I cannot emphasise too strongly that no odium should attach to them. They are not to be criticised. They are anonymous, and may not defend themselves. The people who must accept blame, criticism and responsibility are the elected councils which favour this practice, and ultimately, of course, this House, which endorses it.
The Long Title also envisages the Bill being for "other purposes."
I should, of course, be open to suggestions from hon. Members in Committee, but I tentatively suggest that local authorities that employ their own valuation officers to assess fair market price for property which they purchase compulsorily should be obliged to pay all costs, including solicitors' fees, of appeals

to the Lands Tribunal, whatever the outcome of the appeal, and be obliged to provide interest-free finance to the property owner, and to pay a solatium of 10 per cent, above the award.
This Bill can do no harm—it only provides an option—and I therefore hope that the House will welcome it, and speed it on its way to the Statute Book.

10.15 a.m.

Mr. Peter Doig: I oppose the Motion. At present, when a compulsory purchase order is made by a local authority, the first thing that happens is that the local authority and the property owner try to arrive at a mutually satisfactory figure. If they are not successful, the second thing that happens is that the district valuer, who is not employed by the local authority but is a Government employee, is called in. He negotiates with both sides and arrives at what he considers to be a satisfactory figure. If the owner is dissatisfied, with that figure it is open to him to negotiate with the district valuer. It is open to him to appeal to the local authority if he considers the figure to be unfair. It is open for him to go to arbitration if he cannot get satisfaction on the figure. It therefore seems to me that the law already provides for almost everything that this Bills seeks.
But there is another party to these proceedings besides the property owner— there is the local authority and, therefore, the ratepayers. It has been known for a district valuer to fix a figure that was considerably higher than the local authority thought was fair. I used to be a city treasurer, and many times I have objected to what I considered to be an exorbitantly high figure fixed by the district valuer. That may be called pressure, but it was pressure in the interests of the ratepayer.
In a number of cases I got the figure reduced, not by the district valuer but by the person selling the property. Hon. Members opposite may consider that to be unfair, but it is a matter of where one's concern lies. In one case the parties were the owner of a public house and the ratepayers. I know where my sympathies were in that case—they were with the ratepayers, and not with the publican. I succeeded in getting £1,000 knocked off the valuation. This sort of thing happened more than once with my own local


authority, and I should imagine that it has happened with many other local authorities. It is not merely a question of considering the poor public house owner or other property owner who may be getting a raw deal. There are ample safeguards for both sides in the present law and we have heard no justification this morning for changing the law. In my view, we would be wasting the time of the House if we allowed yet another Bill to be printed which, we are told, would in any case never get any further. We should not waste the time of the House in this way.
All the Bill would do would be to change the name of an employee of the council from "valuation officer" to "bargaining officer". We all know the saying about a rose by any other name smelling just as sweet, and if people consider that the valuation officer has a bad smell, anyway, it will be just as bad if we change the officer's title. I see no useful purpose in this Bill, and I ask the House to reject it.

Question put:—

Mr. Speaker: A Division having been claimed under paragraph 4 of the Sessional Order, proceedings on this Motion stand over until the end of this evening, when the Division will be taken.

The Proceedings stood deferred pursuant to Order (Sittings of the House {Morning Sittings)).

GAS INDUSTRY (BORROWING POWERS)

10.20 a.m.

The Minister of Power (Mr. Richard Marsh): I beg to move
That the Gas (Borrowing Powers) Order 1967, a draft of which was laid before this House on 31st May, be approved.
In three of the last four years we have had debates on the gas borrowing powers. This has become almost an annual event. The reason for this is that throughout the whole of that period the demand for gas has consistently outstripped all our expectations and all the forecasts. This Order is necesary because by the end of June the level of the borrowings of the gas industry will be £891 million and

we shall be only £9 million below the initial limit laid down in the original Act. If investment is to proceed as planned, the limit in the Act is liable to be exceeded at some time in the course of next month. Next year even the upper limit of £1,200 million will be exceeded and I shall almost certainly return to the House with a Bill to provide for still higher limits which will give an opportunity for a much wider debate on the whole subject.
This is becoming an annual event, but, as hon. Members on both sides of the House will accept, there are very special reasons in this case and this particular industry because of the rapid changes which are taking place.

Sir Gerald Nabarro: We want an annual event on all borrowing powers Orders for the gas industry, the electricity industry and coal industry. That is what I have advocated for 15 years. We want an annual scrutiny of how much money the Minister authorises. When he said that it is an annual event, so long as he does not make it always on Derby Day we do not mind.

Mr. Marsh: The purpose of my remark was to provide the hon. Member with this annual opportunity. I am not going to make a general statement about fuel policy. I hope to say something about this before the Summer Recess, but in this rather limited framework of this Order I should like to give an idea of how capital—the hon. Member says that large sums of money are being spent, and the House should have explanations—can be spent so rapidly and how this extra £300 million which will be made available if this Order is approved, will be spent.
I draw the attention of hon. Members on both sides of the House to the Gas Council publication yesterday, copies of which I think have been sent to hon. Members, entitled "Gas Goes Natural". Leaving aside the choice of title, I think this is an extraordinarily useful book and gives a great deal of information. In many ways North Sea gas is the key to the whole present situation. Drilling started on the United Kingdom Continental Shelf in December, 1964, and in two years the whole future of the gas industry has been radically changed. So far we have found


at least four, and possibly live, commercial gas fields and since March this year parts of the East Midlands have already been receiving North Sea gas, although so far only as feedstock for town gas.
We do not know the extent of the present discoveries. That will not be known accurately for some time, but, on the evidence we have available, there will certainly be not less than 2,000 million cubic feet a day on shore by 1970. To get this in perspective it means that we shall have twice the present consumption of the gas industry available within something like two-and-a-half years. This is an incredible feat of marketing and a hefty challenge faces the industry in having to double its market in two-and-a-half years. By the mid-1970s the amount could rise to 3,000 m.c.f.d., which is roughly three times the present gas consumption.
These are big figures but they have to be seen in the context of a growing energy market in the United Kingdom. It does not amount to a revolution in the pattern of energy supplies, but amounts to a revolution in the nature of the gas industry and the sources of its product. Exploration is still continuing and there are many promising structures which have as yet been unexplored. The quantities which will ultimately be available in the North Sea may well be very much bigger even than the figures I have mentioned.
We compare this situation with the situation in July, 1965, when no one expected that any discovery in the North Sea could lead to large additional supplies of cheap gas much before 1970. That was the considered opinion in the light of the then available facts. The only thing which has outdated that forecast has been the discovery of natural gas on a scale and at a rate which are quite unique in the experience of the world oil industry. There is reference to this in the Gas Council's prospectus in support of its request for raising the current borrowing limit.
The other question is the speed with which it is hoped to absorb the gas in the North Sea. As these factors emerged they outdated the old assumptions about future investment levels. We have still to set the price of North Sea gas.

Sir G. Nabarro: Hear, hear. The Ministry is being long enough about it.

Mr. Marsh: I shall come to the point about being long enough about it. It is a relatively simple procedure to give away taxpayers' money and I think it not a bad thing to find some reasons to back that up. I cannot see what the argument is about. When I met some of the gas companies and they asked for our views about the price of North Sea gas, I said that it was essential to fix a fair price. The answer was, "Absolutely right", and they have gone on arguing about it ever since. The price has been under discussion for some months. The negotiations lie between the Gas Council, as purchasers on behalf of the gas industry, and groups which have gas to offer. It is sometimes overlooked that not all companies buy foreign gas. The groups with which we are involved are Shell and ESSO, the Council's own partners, Amoco, Amerada and Texas Eastern, and the Arpet and Phillips Groups.
As the House will be aware, my Department has been taking a prominent part in discussions with certain companies and with the Council in recent weeks. I have made quite clear to all concerned the Government's position in this matter, which is that in the interest of the national economy and the balance of payments the price paid for the gas should be as low as possible consistent with giving a fair return to the producers and encouragement to further exploration. Obviously it would not help for me to quote figures at this juncture, and I do not intend to do so, but I believe there is ample scope for a commercial agreement which will meet the legitimate interests of all parties, and I hope that negotiations will proceed to a satisfactory conclusion in the not-too-distant future.
It has been suggested in some quarters, and was a moment ago, that these discussions are being unduly prolonged. I accept that it is not in anyone's interest for the negotiations to be unnecessarily drawn out and I believe that those taking part are of the same opinion. At the same time, we must recognise that these are important issues with a lot at stake for both sides and it is more important to get the right answer than to reach a hasty conclusion. Before people begin to get excited about the length of time


taken over these negotiations, we should look at the general practice in relation to other countries.

Mr. Nicholas Ridley: Before the right hon. Gentleman leaves that point would he say something about the position after the price has been determined when there will be fuller competition in the light of circumstances at a later stage? Has he concentrated on the problem of providing machinery for altering prices in five or 10 years time, whatever it may be, from what they are now?

Mr. Marsh: This will be a feature of the contract. It is wrong to say that the settling of the price is the easiest part of the exercise. It is certainly the shortest part of it. The contracts for these sales will be enormous and very involved documents. The features of various clauses, and so forth, will be an important part to be negotiated. I agree with the hon. Gentleman that there will be much to be negotiated long after the price has been settled.
Dealing with the question of delay, one of the problems of Ministers is that they are always under pressure to produce rapid results on demand. It is important that they should not be stampeded. It can be seen from what has happened in other countries which have had to face the same problem that it is by no means usual for the first natural gas contracts—these are the first we have ever entered into—to take many months, or even many years, to settle. For example, in Australia, where gas was found offshore in the Bass Strait in 1965, it took nearly 16 months to reach agreement in principle on the price. In East Pakistan negotiations took nearly two years. In New Zealand they took over three years.
As we are here talking about much bigger quantities of gas than were at stake there, I do not think that the progress to date compares badly with that in the other countries which I have mentioned. There is no evidence that delay in reaching agreement on the price has held up the physcial work of developing the fields and bringing the gas ashore. However, having said all that, I repeat that negotiations should not be unnecessarily protracted, and I am sure that this is the view of the

companies as much as it is of the Government and of the Gas Council.

Mr. Edwin Wainwright: Would my right hon. Friend bear in mind that if he fixes the price of gas too low, he will be subjected to a tremendous amount of criticism from the Opposition? Further, if he fixes the price too high, he will meet with an even greater amount of opposition from this side of the House?

Mr. Marsh: Long ago I came firmly to the conclusion that in any decision I made I was bound to be criticised by one side or the other. On the whole, I would marginally prefer to be criticised by the Opposition to being criticised by my own side.

Mr. Norman Atkinson: Does my right hon. Friend recognise that if he is thinking in terms of negotiating a settlement at about 1.8d. or 1.9d. per therm based on an average size field, he will entirely lose his own reputation? If the price is fixed at anything like that which is rumoured at the moment of about 0.3d. per therm, he will be in for the biggest row on this side of the House since 1964.

Sir G. Nabarro: Quite wrong.

Mr. Marsh: I do not want to get drawn into any discussion about the actual price. It is not I who am negotiating. The Act is quite clear.

Mr. Atkinson: It is my right hon. Friend who will suffer.

Mr. Marsh: It was ever thus. The negotiations are between the Gas Council and the companies. As to the figures which my hon. Friend mentioned—in fact, he means 3d. per therm and not 0.3d. per therm—there is a wide range of negotiation to be concluded. I am sure that when the price is fixed it will be, as I said some months ago, a fair one.

Mr. Michael McGuire: This is very important. Does not my right hon. Friend agree mat his room for manoeuvre is very limited because it appears from Written Answers that the competition from oil delivered at power stations and from coal being produced and delivered at present is much less than some of the figures which have been quoted might


suggest? It is certainly much less than the 3d. per therm which has been mentioned.

Mr. Marsh: I am being led astray. It is too early in the morning for me to enjoy that. I will leave that question, except to say that there are many arguments about this. Clearly, there has to be a price at which it can be absorbed. It is not an unimportant factor that to double the market in two and a half years requires a pretty low price to achieve that level of market penetration. This is something for the Gas Council and the industry to determine between them.
I turn to the two main reasons for the exhaustion of the industry's borrowing powers, which has happened rather more rapidly than was expected. One of the two main factors has been the more rapid increase in demand than was forecast about two years ago. This has resulted in increased expenditure on plant and distribution. The second factor has been very heavy expenditure on facilities to enable the industry to absorb natural gas as quickly as possible. These two factors have, in turn, resulted in smaller than hoped for surpluses, resulting in a reduction in self-financing and much heavier calls on the Exchequer.
Taking the demand first, the rate of increase in demand is expected to rise very substantially indeed. The price of natural gas in bulk, whatever it proves to be, is certain to be well below the present cost of manufactured town gas. Obviously this prospect of cheaper gas may well have influenced demand already. It is pretty clear that it has. Over the last two years demand has been increasing at an average rate of 9 per cent., which is 1½per cent, above that which was forecast in 1965. The present demand forecasts obviously contain a considerable element of uncertainty, since the price of bulk supplies of gas has yet to be decided, but the demand is expected to increase by about 12½ per cent. per annum over the next five years, excluding any direct sales by the Gas Council. This compares with about 7½ per cent. previously forecast.
This very rapid rate of expansion in the last two years has required additional expenditure on gas-making plant and on the distribution system. The industry has

had to apply for supplementary capital for the financial year just past of more than £40 million. The final figure for expenditure is £69 million above the 1965 forecast. A similar effect is seen in estimates for the current financial year. Although the discussions are still proceeding, it is likely to result in an expenditure of over £130 million more than was envisaged in 1965, though much of this additional investment is already directly attributable to natural gas.
The investment in production plant is being subjected, quite rightly, to very special scrutiny, but the bulk of the investment is already committed. It was suggested to Boards that, in considering new committals, some calculated risks may be justified to avoid expenditure on plant that might have only a very short life. This is one of those difficult choices that have to be made, but we have to be prepared to accept that we cannot afford to pay the vast sums involved to meet any level of risk. The Government recognise that they must bear their share of responsibility for consciously taking these risks.
This is one of the problems arising with new forms of energy and which we have had in other fields—in nuclear energy, and so forth. It means that to get the benefits in the future, heavy expenditure has to be incurred in the immediate future. To give an example, largely on account of natural gas there will be expenditures in the period from the passing of the Act until 1969 on trunk pipelines and associated facilities totalling about £220 million, for which no provision was made in the 1965 forecast, because no one at that stage was thinking of natural gas on this scale.
The Gas Council is laying a high pressure transmission system which is extending and strengthening the existing methane grid. This will bring natural gas to all the area boards by 1970. It will also provide room for future expansion. This involves immediate expenditure. It involves the purchase and the laying of 1,300 miles of pipe. This has to be paid for. In addition, the Area Boards have to incur further heavy expenditure on associated distribution projects. The total expenditure on transmission and distribution over the next five years in the gas industry will be about £800 million.

Mr. McGuire: Is this for conversions as well?

Mr. Marsh: I am coming to conversions in a moment. This is for transmission and distribution. The conversion of appliances to use natural gas introduces an entirely new type of expenditure. The scale of the finds in the North Sea is such that conversion to direct supply of natural gas is, clearly, the right policy. Over the next five years, the expenditure will be, very approximately, £190 million for conversion, out of a total of about £400 million for the whole operation. The great problem is that North Sea gas happens to be so good that every appliance has to be changed to use it. The total cost will be about £400 million, and over the next five years it will be about £190 million.
Conversion on the scale required in this country is an enormously complex and lengthy task, but the returns will be well worth it. It is well worth spending the money now for the substantial savings likely to come to us from it. We estimate the total benefit of this exercise— this is the problem of having to embark on expenditure now for a return to come in the future—at about £1,400 million over a period of 30 years.
The phasing of the conversion has to be planned so as to avoid further expenditure on production plant, but, in the lengthy interim period before the conversion is completed, there will be some expenditure on the conversion of oil reforming plant to use natural gas instead of naphtha for reforming. This should have an immediate favourable effect on our balance of payments in terms of import substitution.
I may be asked whether the gas industry will be severely handicapped, if not crippled, by the repayments and interest involved in the proposed level of capital expenditure, which is at least twice that envisaged two years ago. The answer lies in the accelerated rate of expansion now envisaged. Without natural gas, expansion would have been much slower, and so, of course, would have been the rate of investment. To have had to meet the expansion now expected, without natural gas, would have required an even higher rate of investment.

Sir G. Nabarro: We have just witnessed the biggest increase in electricity prices since nationalisation, 10 per cent. over the country as a whole and 15 per cent. in the Midlands, the plea being that the electricity industry has fallen short of its targets. The gas industry is now expected to exceed its targets. May we not, in logic, expect a reduction in the price of gas on account of this huge increase in production envisaged?

Mr. Marsh: As the Leader of the House used to say, "Not next week". While one would hope—and the purpose of this expenditure now is that it will provide cheap energy—

Sir G. Nabarro: But will prices come down? That is what I want to know.

Mr. Marsh: Without wishing firmly to commit any successor of mine, I would certainly hope that they would not rise as rapidly in the future as they have done in the past. The purpose of the investment now is to make available to us opportunities of cheap energy.

Mr. McGuire: Mr. McGuire rose—

Mr. Marsh: I would like to conclude at some stage because I know that others wish to take part in the debate. I am sure that the hon. Member for Worcestershire, South (Sir G. Nabarro) will, and we shall all enjoy listening to him—in varying degrees.
It is our intention that this sort of expenditure will enable us in the future to have an industry with a much cheaper supply of fuel. The picture is of an industry in a state of very rapid growth and with an expectancy of even higher growth rates in the future. There has been a dramatic change from the 1950s, when there were those who questioned whether the industry could survive and when it was faced with static or even declining sales. Technological advances in gas production have combined with improvements in gas appliances, and this began the advance. Natural gas is bound to accelerate it. It is an expanding industry which is bound to require much more capital. A margin of error in the forecast of capital requirements, though large, can be explained, I think, even apart from the new situation brought about by natural gas. The industry's capital requirements —we have to face this—may well need to be revised further as the pattern of natural gas absorption becomes clearer.


This is why we have a flexible approach in dealing with this subject.
The Order is essentially a stop-gap measure to maintain the flow of finance over the next year or so and to give us flexibility in dealing with this rather new feature. A further programme will be formulated in the light of the fuel policy review and will be submitted to the House next year when the new borrowing powers Bill is tabled.
The industry has spent its capital wisely. Occasionally, there are criticisms of the nationalised industries, and it is worth saying that productivity in this industry is extraordinarily good and continues to improve. The number of employees in the industry has been reduced by 5,000 since 1961, and output has risen by 42 per cent. If the private sector of
industry produced the same sort of performance, life would be very happy for us all.
The problems of the future distribution of natural gas, of conversion and of phasing out gas-making plants are all formidable, but they are soluble. If one had any doubts at all about that, we would not be asking the House to approve this Order today.

Mr. Michael Alison: Will the right hon. Gentleman confirm one figure? Is it 2,000 million cubic feet a day by 1970 to be landed, as it were?

Mr. Marsh: Yes, Sir; the estimate is 2,000 million cubic feet a day by 1970 on shore.

10.46 a.m.

Mr. Michael Alison: The Minister will not be surprised, though, no doubt, he will be relieved, to know that we do not intend to oppose this Order—

Sir G. Nabarro: Why not?

Mr. Alison: —or, perhaps, I should say, to divide on it. I least of all have any right to speak for my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro). However, we are unitedly opposed to having to take this sort of Order at a morning sitting.

Sir G. Nabarro: And on Derby Day, too.

Mr. Alison: And on Derby Day, though there are other reasons. Very

large sums of money are involved in this substantial first tranche of borrowing, £300 million. We find all sorts of things to be taken at this morning's sitting— tractor cabs, agricultural subsidies for calves and so on—but in this Order the Minister of Power produces something which is really a lion nestling among the dandelions, expecting us to sanction the expenditure of so enormous a sum of money.
The Minister has shown a lack of imagination as well. In our present circumstances, particularly with the Middle East oil crisis, he had an opportunity to say something to reinforce and substantiate some of the things which the Prime Minister said in the House yesterday or the day before about certain people thinking very carefully on the question of United Kingdom oil demand in future if the cut-off which we have been suffering in the last 36 hours goes on. If the Minister had taken this Order at the right time, he would have had an opportunity to touch a little on that aspect of the matter.

Mr. Alex Eadie: Would not the hon. Gentleman include the question of this country's indigenous coal resources as well?

Mr. Alison: I certainly would, and I should have immediate support from all quarters. We have already had something of a debate on gas-pricing policy raised by the hon. Member for Dearne Valley (Mr. Edwin Wainwright). These are some of the fundamental issues confronting the country today, the future security of our indigenous and imported fuel supplies, the future of the coal industry, of gas pricing and so on; yet here we are discussing this Order at a morning sitting.

Mr. Marsh: Before the hon. Gentleman works himself into too much of a frenzy, will he consider this? Given the importance of the Order which we are discussing and the vast size of the sums involved, does he still think that, even on Derby Day, more than six of his hon. Friends would have turned up?

Mr. Alison: What the right hon. Gentleman does not appreciate is that my right hon. and hon. Friends are extremely hard put to it because we are opposing the Finance Bill in detail and have been up all night, as is our duty as Opposition Members, subjecting the Finance Bill to rigorous scrutiny.

Mr. Ridley: Mr. Ridley rose—

Mr. Speaker: Order. The Chair is listening with interest to all that is said about Derby Day and the international crisis. But we must stick to the subject of the debate. It is wide enough.

Mr. Alison: I bow to your ruling, Mr. Speaker, but I want to remind the Minister that he must not be too coy about coming to the Dispatch Box. We like to see him here. He hides his light under a bushel. He produced a sensational announcement about electricity prices the day before the Whitsun holiday when nobody was here, and brings this Order this morning. Let him come more regularly and when more Members are here. They have been up all night reading the Finance Bill.
Now that we have been confronted with the Order at a morning sitting we find that there is a number of disturbing features about plans for capital development in the gas industry on which we want reassurance. We are grateful for the publication of the admirably clear booklet provided by the Gas Council, called "Gas Goes Natural", which is very helpful. It is so clear and has so many interesting facts and figures that it serves rather to emphasise some of our anxieties than to reassure us on them.
Our first anxiety arises from the enormous increase in the sales of domestic gas expected in the five years up to 1970. I am referring to the figures given on pages 4 and 5 of the booklet, where we find that domestic consumption of gas in the next five years is expected to increase by about 2,000 million therms per annum. That is stated on page 5. Those 2,000 million therms represent nearly a 100 per cent. increase in the consumption of gas in the domestic sector. The table on page 4 shows that the domestic sector consumed 2,250 million therms in the current year, and page 5 tells us that that is likely to be another 2,000 million, bringing it up to 4,000 million-odd by 1970–1971–1972.
Associated with this substantial increase in sales to the domestic sector is a long list of appliances at the bottom of page 5, under the subheading "Forecast". These will also show a substantial increase in this five-year period. There will be huge increases in the numbers of gas space heaters,warm air and central heating

appliances, cookers and water heaters. Domestic consumption, including this great number of appliances, will increase by about 100 per cent. in the next five years.
But it is difficult to see how much, if any, of this huge increase in the domestic sector is likely to be burning natural gas. The Minister has reassured us a bit by pointing out that there will be available about 7,000 million therms a year "on the beach"—that is, some 2,000 million cubic feet a day per annum—in the form of natural gas by 1970–71. But we find that the sum which will be spent on conversion of appliances by that year is well under half the total cost of conversion—about £190 million out of the £400 million the Minister mentioned. In other words, the £190 million which he has budgeted for the five-year period to be spent on appliances, represents under half what will have to be spent on conversion over the decade. This means that the huge increase in the domestic consumption of gas will still be geared almost entirely on the old-fashioned gas burning sector. Is this the right way to set about the next five years? It is very disturbing.
The domestic sector will probably have the most revolutionary increase in sales in its history, and this coincides with the most striking discovery of indigenous primary fuel since the discovery of coal in this country. Yet in this period of change the big increase in the domestic market will apparently be geared to the burning of the wrong sort of gas, the manufactured fuel for the past. We read on page 5 of the booklet that the expansion of the domestic market will include expansion through new housing completions, and particularly the requirement that all local authority houses built after 1st January, 1969, must have some form of central heating. I hope that the Parliamentary Secretary can reassure us that the gas industry will not be installing in this period appliances, whether space heating, central heating, water heating or any other kind, that will need conversion.
It is crazy to be budgeting now for enormous expansion, a doubling of the domestic load of gas, but using appliances which will have to be converted at a later stage. We want reassurance that all local authority homes built after 1969,


for example, will have built into them appliances which are adapted for natural gas and will not need conversion. Otherwise, it seems very unlikely that the cost of conversion of £400 million over a 10-year period will be realised, because the cost of conversion will increase proportionately with the increase in the domestic market built to burn the old manufactured gas. We want reassurance that the expansion of the domestic market will be geared to natural gas.
Our second anxiety is associated with that concerning domestic consumption. It surrounds the question of the scope there will be for industrial use of natural gas in the next five years. This has been heightened by the Middle East crisis. I know that the Minister has not been in a position yet to give us his review for the next decade, or whatever the period may be. But he will know very well that many figures have been bandied about, many of them apparently originating from semi- and fully-official conferences and get-togethers of the Minister with the "barons" of the fuel industry. One of the figures which emerged from the conference at Selsdon Park Hotel was an increase in the likely quantity of oil to be used as a fuel between now and 1970 of about 30 million or 40 million tons a year, approaching a 50 per cent. increase on the amount being used at present.
That figure must be thrown into immediate question by the sort of events that have occurred in the past few days, particularly the announcement by the Prime Minister that those who assumed that they had a safe market for oil in this country must be ready to think again. If we are going to suffer the cutting off of oil supplies overnight to the extent of 20 million or 30 million tons, as in the past 36 hours, we must not be budgeting at the same time to increase our oil consumption—for industry primarily—by about 50 per cent. in the next five years. I hope that the Parliamentary Secretary will reassure us that the fullest priority has been given to scope for the industrial use of natural gas at the earliest possible date.

Mr. Eric G. Varley: Is the hon. Gentleman arguing on behalf of the Opposition that as a result of events in the Middle East in the past few days we should now start reducing our de-

pendence on oil and concentrate on indigenous sources like gas and coal and that sort of thing?

Mr. Alison: I think that it is self-evident that we shall concentrate on indigenous sources like gas from the nature of the discovery. I am saying that as a strategic argument this is the moment to evaluate whether we shall concentrate our indigenous gas supply on the industrial or domestic market. This is the moment, when oil is being cut off, to consider whether to give priority to the industrial use of natural gas rather than its use for the domestic market.

Mr. Eadie: I am most interested in the point that the hon. Gentleman is making. He must be aware that it is possible to produce oil from coal. Is he thinking along these lines in relation to using indigenous energy resources?

Mr. Alison: I am thinking more in terms of using gas as a fuel for industry and for electricity generation. I am thinking particularly of the chemical industry, where there is scope for the consumption of an enormous quantity. The industry has said that by 1970 it could use about 3,000 million therms a year. This is about half what the Minister is likely to have available on the beach. There is enormous scope for the industrial use of natural gas but unfortunately there is uncertainty and doubt in this document.
On the question of price, this useful booklet says, on page 5, that
… if the terms of purchase … permit
in other words, if the price is low enough to compete with oil and other fuels there will be a striking increase in demand by large industrial consumers. I draw the House's attention again to that big "if"—
…if the terms of purchase … permit…
The Gas Council cannot, however, promise that it will be able to boost the scale of supplies to industrial users. The booklet says that sales to industrial users will only increase by half the rate of sales to the domestic user.

Mr. Marsh: Clearly the Gas Council has to say:
"… if the terms of purchase … permit…


If the price did not permit, there would be no point in buying the stuff. If we are talking about doubling the market of the gas industry in two and a half years, it follows automatically that we are talking also of a very big penetration of the industrial market by gas, because the domestic consumers simply could not absorb that amount of fuel. The whole absorption policy is based on large and rapid penetration of the industrial market.

Mr. Alison: I am a little reassured. But the Gas Council's own estimate for the next five years is that domestic sales will be double those to the industrial user. That seems to us on this side of the House at least questionable in the light of present developments, particularly in view of the possibility that domestic users may, in the main, be using old-fashioned appliances and will have to be converted at a later stage.
We feel most anxious that the Government should reassure us that there will be the most vigorous attention to bringing this natural gas rapidly to the industrial users and not just to the domestic consumers. Indeed, it may be necessary to hold back and discourage the advertising campaign aimed at the domestic market for gas, particularly if the domestic market will, in the main, use not natural gas but old-fashioned gas. Such a campaign would tend to divert capacity from possible industrial application.
One of the disadvantages of extending the domestic sector is that one gets a poor load factor of supplies—because, for example, the gas is used much less in summer and is turned off at night. But the chemical industry could give a steady load of half the quantity of natural gas that the Minister will have on shore by 1970. It would be a steady day and night load with an increasingly satisfactory load factor as a result. All this reinforces the strategic need not only to be planning but to show to the outside world that we are quite capable of switching over on a massive scale from imported fuels, if the need arises, for industry primarily, to this new and marvellous indigenous fuel that we have.
I turn now to the capital position as it is likely to be in 1970–71. What proportion of the capital needs of the gas industry is likely to be self-generated?

The right hon. Gentleman said that it would be about £500 million out of £1,400 million or £1,500 million, he says will be spent in the next five years. Is this one-third proportion of domestic generation of capital to be a long-term feature of the industry? The proportion is below what the proportion for electricity generation has to be. I believe that, in the case of electricity, the figure must be over 50 per cent. The figure estimated for the gas industry is likely to pose serious problems for the Exchequer, particularly with the scale of public expenditure running at the present level.
Can the Parliamentary Secretary enlighten us more about the apparently conflicting figures for growth in gas sales which relate to the present year? In the middle of March, Sir Henry Jones said that the growth rate of sales for the first 11 months of the current selling year were running at a cumulative rate of 7 per cent. This compared with 9 per cent. for the previous year. If the right hon. Gentleman says that the scale of gas sales overall is to increase by about 12½ per cent. per annum in the next quenquennium and, only a few weeks earlier, before the booklet appears, Sir Henry Jones says that sales have slumped somewhat lower than expected, we want to know what the position is likely to be. Have gas sales taken a knock as a result of the freeze, as electricity sales have?
I know that a number of my hon. Friends have more and probably weightier points to make so that we shall have quite a lot on which we want reassurance.

11.7 a.m.

Mr. Eric G. Varley: My right hon. Friend the Minister of Power explained that this money is needed to bring North Sea gas ashore and ensure that it is put into both domestic and industrial use as quickly as possible. Whilst I have no desire to make reference to the negotiations on gas prices, I believe that price is the key to the situation. If the price is too high, obviously industrial users will not change from the fuels they are using now.
Another of the great imponderables is the amount of North Sea Gas that there will be. Will it be, as my right hon. Friend said, 2,000 million cubic feet to be landed by 1970, or nearer 3,000 million


cubic feet? It appears that it will be double the existing gas market for gas made from traditional methods. Obviously, it will be attractive to manufacturing industry and industry generally and it will come into greater use at the expense of one of the existing primary fuels, either coal or oil or perhaps nuclear energy, although I do not think that that is a major problem at present. But I have no hesitation—and here I agree with the hon. Member for Barkston Ash (Mr. Alison)—in saying that it is essential that, if North Sea gas is to make inroads into traditional fuel markets, it should be at the expense of oil. The events of the last few days have proved beyond doubt that the political instability of the oil-producing areas means that our dependence on oil should be reduced as quickly as possible and that we should concentrate more and more on indigenous sources.
Here, of course, indigenous sources also include coal, but I would be going beyond the rules of order if I were to dwell too long on that. But in this connection we can only look at gas as an indigenous fuel from the North Sea in connection with other indigenous sources. There is speculation at present about the coal industry in view of the North Sea Gas finds and the political instability in oil-producing countries. People have often said that one cannot turn a coal pit on and off like a tap but that one can do so with North Sea gas. While I am in favour of bringing it ashore as quickly as possible, it should be phased into our fuel economy in a proper manner. I hope that my right hon. Friend is aware that this is essentially a job of phasing natural gas into the fuel economy.

Mr. Marsh: One of the difficulties of the argument which my hon. Friend the Member for Chesterfield (Mr. Varley) is putting forward is that if gas is not bought quickly, the corollary is that one has a higher price to compensate the producer for not being able to sell as rapidly as possible. He wants a quick return so that he can keep going.

Mr. Varley: I appreciate that point. What I am saying is that once it is ex-loited and brought ashore it can then be turned off. The North Sea is a natural

gas holder. It can be used for phasing rather than for a free-for-all. The exploitation should be carried out as quickly as possible with existing primary fuel markets.
It is anticipated that North Sea gas can be brought into industrial use very quickly and can be put under the boilers of power stations. This would be catastrophic to the planning of the coal industry and other industries. If it is envisaged that North Sea gas will be put under power station boilers it should be phased and done properly and all the other decisions taken so that it synchronises.
The next point I want to make is the point made by the Minister about the high pressure transmission system that is envisaged in the gas industry. A lot of money will be spent on new machinery and equipment of this sort. When one talks about high pressure equipment one thinks about compressors and similar equipment. The gas industry is actively pursuing possible types of compressor for this particular process in the American market. The manufacturers of mechanical compressors are concerned about this trend. They have supplied the gas industry with all the equipment it needs, and now they find that the gas industry is likely to alter its specifications for compressors and go in for the sort of integral compressor that is produced in America. It has come to my ears that a lot of sharp practice is being undertaken in this process.
As the Minister said, natural gas has been discovered not only off our shores, but in many other countries—Australia, Latin America, the Middle East, Russia and Europe. This aspect of providing equipment for it—

Mr. Atkinson: My hon. Friend mentions sharp practice. Presumably he is talking about gas board contracts in connection with the supply of compressors and other equipment. He mentions the Americans. Is he suggesting that there are unfair methods being used in order to secure contracts from the gas boards? Is he referring to sharp practices from this quarter and is he about to ask the Minister to make an inquiry into this sort of thing?

Mr. Varley: I am leading up to that. There is no doubt that this transmission


process will be undertaken as a result of new and probably sophisticated compressor equipment. The area gas boards are pursuing this type of equipment in American markets, but I think there is adequate machinery in our own mechanical engineering industry which should be looked at first.
The sort of sharp practices which were referred to by myself and repeated by my hon. Friend do exist. Whilst the evidence is not conclusive, I know that the Americans are very interested in capturing the compressor market for the high pressure transmission of natural gas and I hope this matter will be examined by the Minister and his Department.
That brings me to my final point. It appears to me that North Sea gas ought to be phased properly into our fuel economy. I was interested to read the evidence given before the Select Committee on Nationalised Industries a few weeks ago. It was suggested that the Ministry of Power was not necessarily technically equipped to deal with many of these complex problems that beset our industry. There was a suggestion that we should have an energy investment board. I am not sure about that. If there is to be an energy supremo, I should like to see the Minister of Power as the energy supremo. I should like him to take the decisions which are necessary to be taken of ensuring that we get integrated fuel policies.

Mr. Albert Roberts: It is not a question of having a supremo. In the whole history of this country we have never had a proper fuel and power policy. That has been our problem.

Mr. Varley: I agree that there has not been a proper fuel and power policy and I hope the Minister of Power will take note of the evidence given before the Select Committee on Nationalised Industries and has determined to take crucial decisions in the energy field.
Over the last six years there have been about six Ministers at the Ministry of Power and four Permanent Secretaries. In my opinion, there has not been proper co-ordination in the relationship between the Minister and the fuel boards. I hope that the Minister of Power is aware of the very considerable and weighty decisions which will have to be taken about North

Sea gas and how it is to be phased into our economy.

11.16 a.m.

Sir Gerald Nabarro: I thought that the Patronage Secretary was singularly sanguine in putting on the Order Paper four ensuing Orders to be taken this morning after the Gas Borrowing Powers Order. My experience over the last 15 years has been that all borrowing powers' Orders for nationalised industries, but with particular emphasis on the fuel and power industry, attract a very great deal of attention from both sides of the House. They are of great interest to us all.
One complex problem this nation has not succeeded in solving in the post-war years is the correct management and Parliamentary accountability of nationalised industries. That is common ground between us. We are still groping in the dark as to how these industries should be run and to what extent Parliament should interfere with them. I do not want to interfere with them. I only want two things. The first is to ensure that the best men available within their respective fields are appointed to run them, at appropriate salaries, and the second is that Parliament should have reasonable control over the sums of money which are spent by these industries.
I congratulate the Minister on his objective speech and his use of the term this morning "taxpayers' money". I fancy he was alluding to money to be employed by the Gas Council in connection with North Sea exploration, development and extractive processes in the years ahead. The Coal Board is interested financially as well. I am delighted that the Minister at long last takes slow faltering steps in my direction and controverts what so many of his predecessors have said, because both Tory and Labour Ministers of Power have pointed an accusing and criticising finger at me, on many occasions, and have said, "We do not employ taxpayers' money in the nationalised industries."
Last year the Chancellor of the Exchequer budgeted for an overall surplus in excess of £1,000 million. Why did he do it? It was to cover, on Crippsian standards and principles, below the line capital expenditure largely required for nationalised industries. The


£300 million additional borrowing powers of the Gas Council which we are considering this morning is taxpayers' money. I hope that we will not have any nonsense about it from hon. Members on either side.
This is taxpayers' money and as the Chancellor of the Exchequer stood at the Dispatch Box answering me shortly before midnight last night saying that he could not afford a few million £s to alleviate the burden on Surtax-payers— and I voted firmly and enthusiastically against him—I consider that we should be careful in scrutinising this morning the application of this £300 million. I wished to establish the affinity between these two considerations; the money raised by the Finance Bill, which we considered late last night, and the money being expended today as a result of this Order.
This is a singularly unpropitious day to be considering capital investment in the gas industry. We are all pregnant with expectancy in awaiting the Minister's review of fuel and power policy. I give not an inch to the hon. Member for Liverpool, West Derby (Mr. Ogden), who is associated with the National Union of Mineworkers, or the hon. Member for Chesterfield (Mr. Varley), who represents an important coal-mining industry, in my interest in the coal industry with which they have been associated for many years.
It is almost impossible to consider the probity and appliciation of the funds contained in this Order unless we know what is to be the policy for the coal industry in the next 10 years. It is almost impossible to consider this large sum of money for the gas industry in isolation from the coal, electricity and oil industries, although I would not stray from the paths of order by going in detail into the economic and financial affairs of those industries. Hon. Gentlemen opposite were cross with me 12 months ago when I said that the output of the coal industry in 1966 would decline to 175 million tons—compared with Lord Robens' estimate of selling 200 million tons of bituminous coal in Britain. I forecast 175 million tons, and the figure turned out to be 174 million tons. I was uncannily accurate.
I said the other day that I considered this year that the output of the coal industry would result in the sale of

bituminous coal in Britain to the extent of 160 million tons. The coal mining labour force is now down to approximately 400,000. I remember the days, not so long ago when the right hon Member for Derby, South (Mr. Philip Noel-Baker) was saying that 712,000 men in the coal mining industry was an inadeqate force. Now it is down to 400,000. How much further down is it going?
Economists are now talking about a British coal industry which produces only 80 million tons a year within 10 years. That may or may not be accurate. I am endeavouring to stress that we should not be called upon to judge the probity and application of £300 million of investment monies, taxpayers monies, under this Order without parallel, commensurate and corresponding investment programmes in the coal, electricity and oil industries, all of which are contained within the Ministerial fuel and power review.

Mr. Albert Roberts: Would the hon. Gentleman remember the damage done in 1954–55, when glaring speeches were being made from this side of the House by hon. Gentlemen opposite? Would he also bear in mind the unknown future of the coal industry, something which he failed to mention in his pamphlet "Ten Steps To Power"?

Sir G. Nabarro: "Ten Steps To Power" was written by me in 1950, 17 years ago. I preceded the Ridley Committee's Report on fuel and power policy. Much of what I wrote has come true; but I did not envisage the total turn-round in the availability of oil supplies for this country as a result of the policies of my right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd), which was brought to spate during 1957–58. But that is a separate issue and I am endeavouring to point out that this order is unpropitious because it should have followed, rather than precede, the fuel and power review.
My next point is little more than academic in character. I have always found absorbing reading in the encyclopaedic productions of the fuel and power nationalised industries, notably in the form of their annual reports and accounts. I read the Gas Council's annual reports assiduously.

Mr. Marsh: Fascinating reading.

Sir G. Nabarro: They are indeed fascinating.
The last Report of the Gas Council is in respect of the year to 31st March, 1966, published in August of that year. I find it difficult to judge the probity and application of this Order without the Report of the Gas Council for the year to 31st March, 1967, though I fear, in view of the Parliamentary routine, that I shall be forced to so judge it. I will compare the capital investment programmes set out in the Gas Council's last Report with those set out in the National Plan and now brought before the House in the form of this Order. I do so because there are glaring differences. Paragraph 108 of the last Annual Report and Accounts of the Gas Council stated:
The aggregate amount of investment for 1965–66 approved by the Minister, was (on the basis of constant prices) £92·5 million, but during the year this approval was increased to £116·9 million to provide additional production and distribution capacity needed to cover increasing gas sales. Actual investment was £119 million. The continued acceleration of the demand for gas and the provision of the transmission systems required to exploit the discoveries of North Sea gas will cause future investment to be much higher: investment currently planned amounts to £190 million for 1966–67 and the level is then expected to rise for two or three years to around £250 million per annum. These sums do not include the finance required to convert consumers' appliances to use natural gas.
I end the quote there. I draw the attention of the Minister to the fact that whereas we started last year with an estimate of capital investment by the gas industry of £92 million, subsequently it was corrected to £116 million and it finished up as £119 million. Now it is envisaged that it will go forward to £250 million. Thus, we are multiplying gas investment by approximately 2½ times.
That is a very far fling from the National Plan, published at roughly the same time and after the exploration for North Sea gas has commenced. The National Plan envisaged that capital investment in 1964 would be £89 million, in 1965 it would be £111 million, in 1966 it would be £142 million, in 1967 it would be £155 million, in 1968 it would be £140 million, in 1969 it would be £143 million, and in 1970 it would be £149 million. The National Plan envisaged investment on the part of the

gas industry at one half the rate that we are now proposing, all of which shows that the National Plan, on publication and ever since, ought to have been consigned to the scrap heap. It is the most drivelling rot ever published by any Government in living memory.
So much for the National Plan—a mere mistake of £125 million a year of the taxpayers' money; nearly as reprehensible as the mistake made by the Chancellor in computing the yield of Income Tax last year, when he made a mistake in his sums of £354 million in a year. I have drawn both mistakes to the attention of the House within the short Parliamentary span of 16 hours. Mistakes in money calculations and in financial statistics of this magnitude are a national disgrace. The Minister of Power—this same Minister of Power—is responsible for the mistakes made in the National Plan, and the fact that within 18 months he has had to double his earlier figures is disgraceful.
Having said all that about the hopelessly inadequate financial forecasting of the Socialist Government—a national scandal and disgrace—[Laughter.] It is not a matter for the hon. Member for Dearne Valley (Mr. Edwin Wainwright) to laugh at; this is taxpayers' money. My constituents in South Worcestershire object to it very much.

Mr. Eric Ogden: Does the hon. Member agree that the Minister of Power is only human, as are his servants in other industries? Does not he agree that such mistakes— perhaps not on the same scale—occur in private enterprise or in industrial forecasts? Will he say whether he is pleased that the forecast was wrong and that there is an increase?

Sir G. Nabarro: In the days of the late Sir Stafford Cripps—who was a man for whom I had tremendous admiration; notwithstanding his politics, which could not have been more antipathetic to my own political convictions and philosophies, I still had respect for him as a man—I always told him when he was at the Treasury what nonsense it was to publish an Economic Survey before each Budget, trying to forecast over years ahead what was going to happen. One cannot do it.
A local authority in North Wales wrote me a letter a few weeks ago. I refer to this in the context of the Order that we are debating. It asked me how many skilled, semi-skilled and unskilled men I would employ in the engineering works; how many male and female hands I would employ in the shops, in the tool room and in the production shops, in the transport bays and the remainder, during every year forward until 1977. In reply to the distinguished gentleman who addressed the letter to me I wrote across the document in my own fair hand, "Drivelling rot. You have asked me to estimate whom I will employ 10 years from now. I do not know whom I will employ 10 weeks from now, so uncertain is trade, industry and commerce in our country today, let alone 10 years hence." The same considerations apply to the Treasury and the Ministry of Power.
I conclude by referring to the capital employed in the industry, and the return on it. It is averaging 10 per cent. The Minister will know that the Gas Council has proclaimed proudly on page 24 of its Annual Report and Accounts for the year ended 31st March, 1966, that the gross return on capital employed in the industry in 1962–63 was 9·3 per cent.; in 1963–64 it was 10 per cent.; in 1964–65 it was 10·8 per cent.; and in 1965–66 it was 10 per cent., averaging over four years, in retrospection, 10 per cent., as compared with 12 per cent, in the electricity industry. This £300 million of additional investment—and I shall not oppose it—makes me ask whether we may be certain that the rate of return on capital investment in the gas industry will continue to average 10 per cent., taking one year with another.
I intervened in the Minister's speech to point out that on 12th May in the House he announced that electricity charges would rise by 10 per cent., on average—as he said—over the whole country. In fact, the Midlands area has prognosticated an increase of 15 per cent. in its electricity charges.

Mr. Alison: Shocking.

Sir G. Nabarro: "Shocking" says my hon. Friend the Member for Barkston Ash (Mr. Alison). It is the biggest such increase ever suffered. It means busting the prices and incomes policy of Her

Majesty's Government. That alone will bust it. Yet the nationalised electricity industry made a profit, or surplus, of more than £80 million last year. Notwithstanding a surplus of £80 million, electricity prices will rise by between 10 per cent. and 15 per cent. Why? Because, according to the Minister, a grave error was made in calculating the capital investment programme of the industry, and it will now be greatly over-provided with plant between 1968 and 1970, for which the consumer must pay in advance for amortisation of the prospective capital assets.
So, when the industry's plant is under-occupied the poor, battered, long suffering domestic consumer has his electricity tariff raised by between 10 per cent. and 15 per cent., when the capital assets are under-employed.
What happens in the gas industry? We are told that the capital assets will be fully employed and that these additional moneys—taxpayers' moneys—are being pumped into the industry in order that North Sea gas may augment the former supplies of gas derived from coal and fuel oil. Cannot we reasonably expect a reduction in the price of gas for the housewife? The plant will be completely occupied. It is said that the price tariffs of a nationalised industry have never been known to come down. They have not in my lifetime, but I am still hopeful, because I like the gas industry. I always have been, and I always shall be, its friend.
When the right hon. Member for Easington (Mr. Shinwell) nationalised the industry it was in a kind of atmosphere of "Fanny by gaslight"—a piece of Victoriana, the smallest of the nationalised industries, something obsolescent, decrepit and shortly to expire. But it has grown apace and is competing effectively with electricity. I love the industry's slogan "Instant Gas", which is so much more effective than the Labour Party's slogan, "Let's go with Labour". "Instant Gas" is so much more effective because it is successful, and the Labour Party is not successful.
My message to the gas industry today is that, if it wants these large sums of money on the highly attractive prospectus —that is what it is—of bringing in North Sea gas, it should be against an undertaking that gas prices for consumers of


"Instant Gas" will steadily and progressively decline, compatible with the industry earning 10 per cent. return on the capital employed.
With those few words, and in anticipation of detailed replies from the Treasury Bench in due course, but not this morning —we shall undoubtedly have to return on another morning to hear the Ministerial answer; too many coalminers opposite want to speak and too many of my hon. Friends want to ask penetrating questions about North Sea gas for us to finish this morning—I promise the Minister that I shall not vote against the Order, but I shall continue to press that we scrutinise the investment programmes of all nationalised fuel industries, including gas, at least on an annual basis.

11.42 a.m.

Mr. Norman Atkinson: I am not sure what the difference is between instant gas and instant rhetoric, but it is always a pleasure to follow the hon. Member for the Royal Shakespeare, who is, I understand, a shire Member—I think for Worcestershire, South. I have never understood what that is either. [HON. MEMBERS: "Sauce."] The hon. Gentleman always insists that he is a shire Member. He began his speech this morning by announcing to the House that he was pregnant with expectancy. He said it with such immaculate diction that I think we were rather pleasantly surprised by the fact that he failed then to tell us why he was pregnant with expectancy.
One thing on which I agree with the hon. Gentleman is that we cannot adequately discuss the Order this morning in the absence of a fuel policy. I think we are unanimous about that. This is a question of timing. It is unfortunate, because our knowledge of the fuel industry will not be made clear to us for, I understand, some three or four weeks to come.

Mr. Ridley: As we have been discussing these matters for the past 200 or 300 years in the absence of a fuel policy, why cannot we go on doing so? Is not the hon. Gentleman aware that we shall always be without a fuel policy, because such a thing is not possible?

Mr. Atkinson: One of the reasons for the arrival of the new intake in 1964 and 1966 was to stop a repetition of the

mistakes which occurred during the 13 years prior to 1964. It is because the country objects to the absence of policies such as a fuel policy that the people elected a new Government. This was the whole purpose of the exercise. We are under new management. Therefore, we have a right to talk in terms of a fuel policy under the Labour Government. Because of the timing, we cannot discuss it in detail in the absence of a fuel policy.
It is the Minister's responsibility not to delay making that statement for too long. I hope that the rumours to the effect that it will be postponed until after the Recess are ill-founded and that we shall have the statement before the Recess so that we can make a much more accurate assessment of what is going on.
The second thing on which I agree with the hon. Member for Worcestershire, South is on the question of the management of our nationalised industries. I agree with what he said about the necessity of having adequately paid people. We should now try to initiate a new trend in management by having younger people. It is now necessary in our science-based industries, which is what our fuel industries are, to have in command people between 30 and 35. I should like to see people getting to the top of the tree in publicly-owned industries at about the age of 30 or 32, being seconded, perhaps, either from other sections of industry or from the academic world. The management of these nationalised industries now needs a stimulus. We need much more adventurous people in control of the nationalised industries.
I appeal to younger people to come into the nationalised industries. Many of our more progressive firms are pushing forward their talented young people at about 30 to 35 into top management positions. I should like to see this happening in this nationalised industry. I want this Labour Government to be adventurous in bringing in young people at that sort of age to take over command of the industry.
My hon. Friend the Member for Chesterfield (Mr. Varley) made an excellent speech, which I wholeheartedly support. As I entirely support what he said, my remarks will be brief. There is a great difference between raising the capital required for the electricity industry and raising the capital required for the gas


industry. The electricity industry found it necessary to raise part of its new capital from revenue. This was totally wrong and will be disastrous for the development of the industry. The Government are to be condemned for adopting that method, particularly at such a time, because the industry has, of necessity, had to announce price increases of about 10 per cent. From that point of view, I totally favour my right hon. Friend's approach this morning and welcome the way in which this capital is to be raised for the gas industry.

Sir G. Nabarro: I believe that I am correct in saying—perhaps the Ministerial reply will cover this point—that 30 per cent. of the new capital required by this industry will be raised from its own resources, which is approximately the same as what has happened in the electricity industry, the principal difference between the two being that hitherto the capital assets of the electricity industry have always been so much more expensive than the capital assets of the gas industry.

Mr. Atkinson: I thank the hon. Gentleman for that intervention. I was just coming on to that aspect, because I believe that the amount of capital raised in the electricity industry is far less than that. In the negotiations now taking place about natural gas, there should be a complete reappraisal of the whole of the capital assets of this industry and those responsible should write into the negotiations now going on a method of raising the necessary capital. I hope that the Minister will tell us later that he is talking in terms of linking the capital needed for the industry's future development with the negotiations now going on.
In commenting on the negotiations about the price of natural gas, we are again talking in the absence of hard facts on what is now being discussed between the Government and the oil industry and it is difficult to make a proper assessment, but we know something about the course of negotiations. Taking an average field of about 500 million cubic feet and using that as the basis to which we can relate prices, it is a common view on this side that the negotiations should in the end fix a price at about 1.8d. or 1.9d. per therm. We are alarmed to hear of some of the extravagant figures being quoted. I repeat what I said earlier.

There are rumours that the price may be 3d. a therm, but even if the final settlement is 2½d., there will be revolution on this side. We are not prepared to accept agreements which give such an extra-ordinarly large return on the capital involved and guarantee it in that way, while, at the same time, the capital needs of the industry have to be met from other sources.

Mr. Edwin Wainwright: Does my hon. Friend appreciate that there is a great demand from the Opposition for a reduction in the price of gas throughout the country, and, on the other hand, they want to compel the gas industry to buy natural gas from the North Sea at more than 3d. a therm? They cannot have it both ways.

Mr. Atkinson: Again, I thank my hon. Friend for his intervention. We must be clear what we are talking about in terms of return on capital. I understand that the Gas Council is negotiating on the basis of figures which will guarantee the oil company investors between 25 and 30 per cent. return on capital. This is a fantastic figure. If the price ultimately amounts to anything like 2½d. a therm, there will be the biggest row on this side of the House since 1964, and quite rightly.
Our basic criticism is that the development is being done not by a publicly owned concern but by private industry. We have carefully considered all the arguments to show why a public concern could not explore for this gas and initiate the development, and we reject them. They are inadequate grounds for saying that it was not possible for the Government to acquire the necessary rigs and expertise to do the job. What nonsense it all is. This development should have been undertaken by a public corporation, with public accountability and using public capital.
Now that the development has been handed over to private enterprise, we warn the Minister that his own reputation is involved in the price which he fixes. Far be it for him to become a power "supremo", as one of my hon. Friends suggested. He will not last that long in the job if his reputation is so tarnished that we no longer have faith in negotiations of this kind. We would regard anything like the rumoured figure above 2½d. a therm as a complete sell-out.

Mr. Alison: Does the hon. Gentleman approve or disapprove of the initial price of 5d. a therm negotiated and agreed with B.P. for the first load of 100 million cubic feet a day?

Mr. Atkinson: That is an entirely different figure and it relates to an entirely different set of circumstances. I was basing my figures on a field of 500 million cubic feet. The initial discussions at that time, in different circumstances, led to a temporary arrangement, and, in addition, no one then knew what sort of reservoir was available and what sort of gas was there. Obviously, in those circumstances, with the risk capital involved, there was some justification for that price, though I am not saying that I agree with it.

Mr. Alison: Does the country yet know what the reserves are, and will it ever know unless the exploration continues?

Mr. Atkinson: Obviously, the hon. Gentleman realises that we now know sufficient about the reserves to be able to talk in terms of the capital involved. He himself has discussed the conversion programme and so on, so he must be reassured about the amount of gas which is there. We have sufficient knowledge now to be able to talk in terms of minimum amounts of gas available. Whether there is sufficient knowledge to assess the need for the extensive capital developments envisaged in one or two quarters, I am in no position to say. I can only read the reports submitted to us by the experts.
I reiterate my support for what was said by my hon. Friend the Member for Chesterfield, which reflects the views of the majority of Members on this side. We hope that, before long, we shall have the Minister's statement on fuel policy and an assessment of the whole situation so that we may accurately evaluate it. All of us, whether we be mine workers or not, are watching very closely to see that we get from the Ministry of Power a balanced fuel policy designed not only to protect the interests of the coal mining industry but to take advantage of all the new sources of power which are being made available to the nation, in the knowledge that, with this Government, they will be exploited to our betterment.

11.57 a.m.

Mr. John Nott: I agree with the hon. Member for Tottenham (Mr. Atkinson) when he says that the nationalised industries need to attract more younger people than they are at present. But this goes to the root of the whole question of salary structures within the nationalised industries. I recall debates in this Chamber, both in the morning and in the afternoon, when the suggestion that salaries should be raised to a level commensurate with those received in private industry was resisted by almost every hon. Member opposite. It is impossible to attract into the nationalised industries the sort of people to whom the hon. Gentleman referred on the salary scales now paid, which fall far below those obtainable elsewhere by people of 30 to 35 years of age. I agree with the point which the hon. Gentleman makes, but it calls for a basic change in Government policy and I hope that he will press it on Ministers.
I am not sure about people reaching the top of the tree at 32 years of age. I have a high regard for the present chairmen of the nationalised industries. The present chairman of the Gas Council has spent all his working life in the gas industry, and it would not be possible for this country to find a better qualified or more excellent person to run it. I very much doubt whether someone in his early 30s would have the sort of experience which Sir Henry Jones has had of the gas industry throughout his life.
I cannot agree with what the hon. Gentleman said about the price of North Sea gas. I forget the exact figures— perhaps my hon. Friends will correct me if I have it wrong—but I believe that the comparison is of this order: the coal industry is producing 175 million tons of coal equivalent, and North Sea gas discoveries will amount to about 30 million tons of coal equivalent.

Mr. Marsh: In rough terms, 1,000 million cubic feet a day is about 12 to 13 million tons of coal equivalent. In 1970, we expect about 2,000 m.c.f.d., which would be about 25 or 26 million tons of coal equivalent.

Mr. Nott: I mentioned the figure of 30 million tons of coal equivalent. The Minister corrects me and says it will be 26 million tons of coal equivalent. I use


these figures to illustrate the point that, even on the most optimistic estimates, North Sea gas still provides a very small proportion of our total fuel requirements. If we want to increase supplies, which must be the right thing to do from all sorts of strategic and balance of payments considerations, it is still necessary to give the maximum incentive to those companies which are exploring in the North Sea. It is not enough merely to say that since B.P. made its find and 5d. per therm was the figure agreed, a great deal more gas has been found and, therefore, 2½d. is sufficient. The point is that there is probably a great deal of North Sea gas still to be found, and the maximum incentive must be given to those carrying out exploration in order to increase the supplies even more.

Mr. McGuire: What is the point of arguing this way if coal is competitive at a figure less than 5d. per therm? Why chase this elusive shadow and pay an extraordinarily high price for it at the expense of coal?

Mr. Nott: Because, surely, the cheaper that we can satisfy our fuel requirements, the better it must be for economic policy.

Mr. McGuire: But it will not be cheaper.

Mr. Nott: I do not want to be led into a discussion on fuel policy generally. The specific point with which I want to deal is the figure of £500 million which it is estimated will be the amount that the gas industry will find from its own resources out of the total of £1,450 million, which is the figure being mentioned as the total capital requirements of the gas industry over the next five years. I want to concentrate on that estimate of £500 million, which is the self-financing portion of the capital requirements of the gas industry, and I do so with reference to the anticipated rise in gas prices which will be necessary to generate that £500 million worth of capital out of the industry's profits over the next five years.
In spite of the Minister's comments when opening the debate to the effect that prices will not rise as steeply in future as they have in the past, it is true to say that gas prices generally, taking a twenty-year period, have been remarkably stable when compared with inflation.
This has come about as a result of technical developments such as the Lurgi process and the I.C.I, process for naphtha cracking, and the agreement with Algeria for the importation of methane. All those have kept gas prices stable in terms of the rise in the cost of living which has occurred. Incidentally, if the Algerians terminate their methane shipments to this country temporarily, I hope that the Government will take the opportunity to rescind the contract which they entered into. I can see no object in continuing that contract at a price of something like 5d. to 6½d. a therm when we can obtain natural gas from the North Sea at 2½|d. or slightly more a therm.

Mr. Eadie: This is all very interesting, but is the hon. Gentleman aware that some coal is produced at present at a price equivalent to 3d. a therm?

Mr. Nott: I was not talking about coal but about methane imports from Algeria. If the methane contract involves a landed price in this country of 6½d. a therm when we can obtain it for approximately 2½d. from the North Sea, I hope that we shall take advantage of the present situation and rescind our contract with Algeria. I have already stated that the figure of 2½d. is too low, but even if it is 3½d. or 4½d., it is still cheaper than the price in the contract under which we receive Algerian methane. If the Algerian Government seek to throw over their contractual arrangements with this country, I hope that we shall take the opportunity to rescind the contract.

Sir G. Nabarro: I agree with my hon. Friend about the extraordinary stability of gas prices over the last 15 years, but with this momentous discovery of North Sea gas and bringing it in in large quantities, surely we want something much better than stability in domestic gas prices. What we want is a reduction in gas prices as a result of North Sea gas. I have launched my campaign this morning to start in the direction of a reduction of prices to gas consumers. Will my hon. Friend be my lieutenant in these matters?

Mr. McGuire: He will be P.P.S. to the hon. Member for Worcestershire, South (Sir G. Nabarro).

Mr. Nott: I will not necessarily volunteer to be my hon. Friend's lieutenant,


but, if we can reduce gas prices, that will be even more admirable than holding them stable.
The Government are considering a rise in gas prices because they have to generate additional profits in the gas industry to finance its huge capital commitments over the next five years. Taking the figures which the Chairman of the Gas Council mentioned yesterday, of the total of £1,450 million of capital required, nearly £500 million is for bulk storage and bulk transmission facilities. All that £500 million will be self-financing and will be self-liquidating over a period of time. When these capital investments have been made, North Sea gas can be brought in and distributed, sales will increase, and profits in the gas industry will rise. The money will come back to the gas industry in the form of additional earnings.
We are talking about a large slice of self-liquidating money which is required for a five or six-year period. Why, then, does the Treasury insist on providing the money from two sources—one from Treasury borrowing, which raises the whole problem of public sector finance, and the other from increased gas prices, providing the capital out of self-generated profits? This is a perfectly straightforward five-year credit, and there are many ways in which at least half of the £500 million could be provided by the private sector as a straightforward credit which could be self-liquidating within a period of five years as a result of rising profits and increased sales in the gas industry from supplies of North Sea gas.
It would be more than possible to arrange an international credit and a national one for up to £200 million over the next five to eight years. That would provide for the Treasury and the Government the sums required to meet the necessary capital expenditure without raising gas prices, which obviously increase costs in industry, and without resorting more and more to the gilt-edged market to borrow, with all the problems which increased Government borrowing create.
The area boards of the electricity industry, and the gas industry itself, are in favour of raising part of this money from the private sector which would be prepared to provide it in the form of a credit. A large proportion of it could be financed in dollars, which would be to the immedi-

ate benefit of our balance of payments and it would be self-liquidating within five or six years, yet we never finance this type of medium-term capital project from the private sector. This is basically because the Treasury will not allow the power to borrow to slip out of its hands. One of the basic and most important problems which we have ultimately to decide is whether we ought to continue disregarding available funds in the private sector to finance public sector expenditure when such funds are available.
The Ministry is confronted with the problem either of raising gas prices— which will increase costs throughout the private sector—to provide this additional money for medium-term capital projects which will in due course be self-financing because of increased profits, or by increasing Government borrowing, what my hon. Friend the Member for Worcestershire, South referred to as borrowing taxpayers' money. The effect of inceasing Government borrowing is inflationary, and I am sure that everyone would welcome an opportunity of reducing Government borrowing for these purposes if this could be avoided.

12.12 p.m.

Mr. Michael McGuire: I do not wish to follow the hon. Member for St. Ives (Mr. Nott) in what he said, save to refer to what I think was a contradiction. When referring to methane imported from Algeria he said that we should have a price range below the landed price of 7½d. per therm, but at the same time he argued that the 5d. per therm for B.P. should continue.
We sometimes hear talk about the nationalised industries being in danger of running down because they cannot attract men who are worth £3,000 to £5,000 a year. The problem of the coal industry is attracting men into the pits at very much lower salaries than this, because the demoralisation of the industry is now almost complete, whatever anybody might say from that Dispatch Box.

Mr. Eadie: I tried to make this point a little earlier, because when the hon. Member for St. Ives (Mr. Nott) was talking about 7½d. a therm for Algerian gas I do not think he quite appreciated the situation in the coal industry. I know that my hon. Friend has considerable knowledge of this matter, but it is a fact


that coal is being produced at a price equivalent to 3d. per therm.

Mr. McGuire: I am glad that my hon. Friend said that. It reinforces what I was going to say. I am sure that if he gets an opportunity to take part in this debate he will develop the matter still further.
The big weakness of this debate is that this Order is only part of the whole picture. We cannot get the proper picture until we have the long-awaited fuel and energy policy. When this matter was discussed in 1965 my hon. Friend the Member for Bristol, Central (Mr. Palmer), the distinguished Chairman of the Select Committee on Science and Technology, said that whatever meals we had made out of the nationalised industries, we had certainly made a good one out of debating the gas industry in one form or another. I am sorry that we have not had similar opportunities to debate the coal industry. I know that the Chair is always very generous if we stray from the paths of order because of our in-built desire to debate the coal industry, and I hope that if I stray today I shall be allowed a little latitude.
In the energy programme we are given the figures for coal, oil, natural gas, and nuclear power. It has been said by Government spokesmen that notwithstanding the expenditure of about £1,500 million, the benefits which will accrue to the public—and as a member of the public I welcome this—is that if we do not get cheaper gas we will at least get greater price stability. I suppose by that they mean that if we did not have this natural gas prices would rise. I hope that the public will benefit in this way, but I have some doubts about it.
I think that the figure of conversions following the Canvey Island project is far too low. I think that it has been depressed to make us more enthusiastic about the importation of natural gas. I hope that when my hon. Friend replies to the debate he will tell us how this figure in the Canvey Island experiment has been linked with the total figure for conversion.
My hon. Friend the Member for Chesterfield (Mr. Varley) said that natural gas, this new indigenous fuel, would have to be phased into the energy requirements of this country. Like all hon. Members who are proud to represent the mining

industry, I accept that and endorse it. I accept that it is not only in the interests of the miners that this should be done, but also that it is in the national interest. I am not ashamed to declare my interest because I maintain that the miners have served this country very well indeed in co-operating with both Tory and Labour Governments to provide our energy requirements.
Arthur Horner, once said, "We can pull down the temple of nationalisation because our demands will not be able to be resisted", yet the miners had to wait until 1961 before there was any reduction in their working hours, and even when that reduction of a quarter of an hour was made, it did not put them back to what they had prior to 1926, but they accepted it in the national interest. I am therefore not ashamed to declare my interest in the miners, but I am interested also in trying to get lower prices by importing this natural gas, because these are in the national interest as well as in the interests of the miners.

Sir G. Nabarro: Will we get them? That is the point.

Mr. McGuire: I had to leave the Chamber for ten minutes when the hon. Gentleman was coming to the beginning of what I think would have been his twenty-minute peroration. I always listen to the hon. Member with great interest because he generates tremendous enthusiasm, such enthusiasm that I think even he believes what he says.

Sir G. Nabarro: The hon. Member said that we will have reduced prices for domestic gas supplies when we have natural gas from the North Sea. I invited my hon. Friend the Member for St. Ives to become a principle lieutenant to me in the campaign I have launched this morning for reduced prices for instant gas. Will the hon. Member for Ince (Mr. McGuire) join the campaign?

Mr. McGuire: The hon. Member has appointed one P.P.S.; I do not know whether he wants a second. I have not said that we will get reduced prices, but I thought that we would get price stability When he was questioned, my right hon. Friend the Minister answered that there would be greater price stability. I do not think he said that the price would be reduced to the consumer.

Mr. Marsh: Since I have been taken in vain on the subject, may I say that the point I was making—which was in an aside to the hon. Member for Worcestershire, South as large parts of most of these debates usually are—was that we have to have this enormous investment now to enable us to obtain for the future what will be a much cheaper fuel. Clearly, we need to have the higher income now. However it is obtained, the public have to provide it in one way or another to get the benefits for the future, but in real terms the price of fuel should be cheaper. That is the purpose.

Mr. McGuire: No doubt the hon. Member for Worcestershire, South has digested that. I want this natural gas to be phased into our energy requirements in the national interest. I also believe it to be in the miners' interest and I have declared my interest in that matter. My hon. Friend the Member for Chesterfield (Mr. Varley) will forgive me if I got it wrong, but I think he said that it will be at the expense of something else. He seemed to indicate that it would probably not be at the expense of nuclear-generated electricity.
If there has been any field in which public money has been squandered it has been in nuclear energy. All we have got from nuclear-generated electricity has been a very expensive form of electricity. At the present stage there does not appear to be any redirection of this policy. If there is to be any phasing in, quite apart from the question of oil which for strategic and tactical reasons is in everyone's mind now, it should not be at the expense of coal. Nuclear energy requirements should be revised. There has been a very expensive experiment. I think all the evidence supports this view. It is often assumed when miners' Members speak in debates that they adopt the posture of Luddites.

Sir G. Nabarro: No. There is no question of that.

Mr. McGuire: Miners' M.P.s are always accused of trying to put forward a case to keep men in a very dangerous, dirty, low-paid and socially dis-esteemed job. That is not my view, but I warn the Government that if we do not very soon get an energy policy which will allow the coal mining industry to meet the challenge in its reorganisation and not to

have more burdens thrust upon it which it cannot stand, the result will be to make deserts out of the mining areas to compensate for the deserts lost abroad. To use a miner's expression "there will be dirt down". All the protests we have had about prices and incomes policy will be a mere feather if we do not get what we consider as the duty of a Labour Government to provide. That is not to give an absolute priority to coal, but to fit it into fuel policy in the nation's interest and in the interests of the miners.
I am thinking of the men in the industry and of their families. It is no good thinking that we can go on with a hotch-potch policy and that now this gas has been discovered nuclear energy can be supported at the expense of coal or that we will traipse through the Lobbies in support of such a policy. This is a forerunner of what we should have had before, a proper fuel supply for the country with coal given its proper place. I welcome the opportunity for a nationalised industry to demonstrate its success, but I warn the Government and I hope that it will not be at the expense of the industry which I am proud to represent.

12.26 p.m.

Mr. Edward M. Taylor: We were all very much impressed by the speech of the hon. Member for Ince (Mr. McGuire) about the coal industry. Such concern as there is in the country at large is felt even more in Scotland where we have very real problems relating to the coal industry and especially if we are to enter the Coal and Steel Community.
Several hon. Members and people outside have praised the energy, enthusiasm and flexibility of the new Minister of Power, but I think the Minister knows that I have been rather disturbed and distressed by the handling of and his attitude to Scottish fuel problems. I want to concentrate on the Scottish aspect of this Order. I have written letters, made speeches and asked Questions about the particular problems affecting Scottish fuel and I have not had any adequate answers. Here we have a unique opportunity in which the Minister is asking for £300 million for the gas industry. Before he gets the money I think he is under an obligation to answer some specific questions about where we are going in fuel policy, particularly on gas.
First, I remind him of the recommendation which was made to him in Prices and Incomes Report No. 7 specifically on the question of the Scottish gas industry. It was indicated in that Report that the Board could see no reason whatever for having a different Ministerial responsibility for gas and electricity in Scotland. The Board also indicated that if investment suggestions and pricing suggestions were not phased, something would have to be done about this. The Report was published in December, 1965. The Board thought then that this was an urgent matter for the gas industry in Scotland because of the different financial objectives given by the Minister and the Secretary of State for Scotland. A long time has passed since then and we have had no indication of any change which might or might not come.
We have the suggestion that most of this extra £300 million will be used for natural gas and work associated with it, but we have no indication whatever of the basis on which this natural gas at the low price which my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) wants to ensure for the housewife will be provided universally throughout the country. On 17th April I asked the Minister if it was his general policy that natural gas
should be made available to the various gas boards at a uniform price",
One would have thought that a simple Question on which he need not commit himself but on which he could give an opinion if he thought it fair or just. His Answer was that he was
not in a position to say what will be the terms for supply of natural gas to the Gas Boards."—[OFFICIAL REPORT, 17th April, 1967; Vol. 745, c. 28.]
Particularly in the last few years we have had very high prices for gas. Some time ago I gave figures which showed that in 1965–66 the price of gas in Scotland per therm realised about 15 per cent. above the average for the rest of the country. Over the last two years we have had a 9 per cent. increase in the price of Scottish gas. No other gas board has reached even half of that figure. If we vote this £300 million, has the Minister the slightest intention of reviewing the question of

differentials in gas prices' throughout the country? Can he give us even a glimmer of hope that natural gas—

It being half-past Twelve o'clock, the debate stood adjourned.

Debate to be resumed Tomorrow.

COMMONWEALTH IMMIGRATION (ERROL WHITE)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Gourlay.]

12.30 p.m.

Mr. Bernard Weatherill: I am pleased to have this opportunity to raise on behalf of my constituents, Mr. and Mrs. White, of Thornton Heath, a matter that has been causing them considerable distress. It concerns their son Errol. The Under-Secretary of State will be aware that over the past few months we have had a considerable volume of correspondence in this matter, and I hope that he will forgive me if, for the benefit of the House, I set out the history.
The problem relates to the working of the Commonwealth Immigration Act. Both Mr. and Mrs. White are of Anglo-Malaysian descent. Mr. White, senior, served in the British Army for seven years during the war with the Royal Corps of Signals. He was discharged in India in 1948 with the rank of W.O.2, and with an exemplary character. On his discharge, his commanding officer had this to say about him:
C.S.M. White … has been employed, during his career in the Army, as a cipher operator, and at one time he performed the duties of a senior cipher operator in Bombay Area for a period if 18 months.
He is an extremely capable N.C.O. who has a thorough knowledge of his work and he has been an asset to the unit.
He has displayed diligence and keenness in his work at all times, possesses good organising ability, and is thoroughly reliable and trustworthy.
That is a very good reference. It was during this time that his elder son, Errol, was born in Bombay.
After Mr. White's discharge, he and Mrs. White returned to Malaya, where he quickly obtained a responsible job. But his health was not good, and on 16th January last year he decided to come with


his wife, his daughter and his younger son to Britain to live. He did so—and I stress it—because he had a British passport at that time. The elder son, Errol, was serving with the Malaysian Army, and both on that account and because he was over 16 years of age—he was 19— he was unable to travel with his parents and the family.
Since the Whites returned to England, Mr. White's health has not greatly improved. He has been suffering from a tumour on the pituitary gland in the centre of the brain, and I have the confirmation of the consultant neurologist at the Mayday Hospital in Croydon that although this tumour has been controlled by radiotherapy it has not been eradicated, and may recur.
Towards the end of last year Mr. and Mrs. White sought my help in uniting their family. I had to explain that their son was affected by immigration controls, that it would be necessary for him to obtain a Ministry of Labour voucher, that he would need to have a job to come to if he got permission to come into the country and, above all, must be free to come—because at that time he was serving in the Malaysian Army.
The hon. Gentleman will know the history of the correspondence, and I will not take up time by quoting from it except to say that our hopes were considerably raised by a letter from his predecessor which we received on 8th November. It stated:
We are prepared to consider making exceptions to the normal rules for people whose circumstances are exceptional and, though I do not wish to raise hopes unduly, I am prepared to consider whether Mr. White might be admitted without a voucher.…
That statement naturally gave us considerable ground for hope, but on 10th January the Joint Parliamentary Secretary wrote to me saying that the case had been most carefully considered but that the British High Commissioner at Kuala Lumpar had reported that there were no special grounds for the Minister to make an exception.
My object in raising the matter now is to ask the Minister whether he will have second thoughts. I am the first to appreciate the need for strict immigration controls—we cannot possibly have open house for everyone who wants to come into the country—but I believe that priority should be given to those of

British descent, and that a compassionate view should be taken of families that are split through the workings of the regulations.
The Home Office apparently shows compassion, because in April of this year a boy who arrived here from India without a voucher was admitted. I have here a cutting from the Daily Mirror of 18th April, which states:
A boy from India wept with his 16-year-old sweetheart yesterday after hearing that he was to be turned away from Britain.
Then, last night, the Home Office overruled the immigration ban and the boy, Yusef Mousa Laher, was released from the detention block at London's Heathrow Airport…A Home Office spokesman announced that Yusef had been allowed into Britain after all. 'It is a very unusual case,' the spokesman said. 'There is no blanket regulation tailor-made for it'.
My constituents naturally thought this a little strange, and asked me whether their son should not attempt the same operation. I had to tell them that that could not be, but I find the distinction beween the two cases rather difficult to understand. We can all appreciate the distress of a family which has always been particularly united but is being artificially split as a result of the workings of the law. Mr. White, senior, who has served this country with distinction, is concerned, and understandably concerned, because of his health. I understand that this tumour, although dormant at the moment, affects his vision, and his concern is that he may never see his son again.
The position at the moment is that the boy, Errol, has now been released from the Malaysian Army—it would appear on compassionate grounds as a result of a letter which the consultant neurologist at Croydon wrote to Malaysia. The boy has a job to come to in this country. I have a letter from Stewart Plastics Limited, of Croydon, who have confirmed that they have a job for him if he is able to get a voucher. He has, of course, a home to come to, so that he will in no sense be a charge on the community. All he lacks at the moment is a Ministry of Labour voucher which will gain him entry to the country.
I therefore ask the Minister, in the light of these facts and in view of the state of Mr. White's health, whether he will look at this question once again. On 13th March I asked the Minister of Labour whether he would give priority for the granting of vouchers to children


of British citizens wishing to join their families but prevented from doing so by the working of the Commonwealth Immigration Act. The Joint Parliamentary Secretary stated:
The immigration control already makes due allowance for claims to admission based on British descent or family unity, and I do not think it would be appropriate, in addition, to grant priority on those grounds when issuing vouchers."—[OFFICIAL REPORT, 13th March, 1967; Vol. 743, c. 29.]
I could not understand exactly what that meant. Nevertheless, I hope that the Parliamentary Secretary will look at this case again on grounds of humanity. I believe it to be a special case in which he could exercise what discretion he may have to ensure that this family is united in the very near future.

12.40 p.m.

The Under-Secretary of State, Home Department (Mr. David Ennals): I appreciate the genuine concern of the hon. Member for Croydon, North-East (Mr. Weatherill) in raising this matter and his desire to help his constituents, Mr. and Mrs. White. I assure him that I have a great deal of sympathy for them. They are relatively new arrivals in this country and they obviously want to see the rest of their family united with them. I am especially concerned to hear of the ill-health of Mr. White, of which I was not aware.
My right hon. Friend and I strongly agree that the most positive encouragement should be given to Commonwealth immigrants who have settled here and that, wherever possible, arrangements should be made for their families to join them. However, there are many problems for those whose families are divided, particularly for men who may be working here, but whose wives and children are in their countries of origin. Many social problems emerge in these circumstances.
Those of us who are concerned, as we are in the Home Office, to secure the full integration of Commonwealth immigrants into our society, want to see united families here and, this being so, the hon. gentleman will be aware that there is no division of opinion in principle between us. It is inevitable, however, that when we come to argue the case for bringing families together, there must be some definition about who can count as a dependant.
Commonwealth citizens who are here often want to bring in their relatives. I receive letters saying that they want to bring in their sisters, brothers, uncles, aunts, nieces and nephews. If we did not define our terms quite carefully we would not be able to maintain effective control over the flow of people from many parts of the Commonwealth who would come here.
Among those with a legal right of admission are, first, wives and then children below the age of 16 of Commonwealth citizens who are either already here or are coming here. Those who are aged 16 and 17 are not entitled to come under the Act, but my right hon. Friend accepts that, in practice, they should come in as well. However, a Commonwealth citizen who has attained the age of 18 does not qualify to settle here simply because his parents live here. As the hon. Gentleman said, he is expected to qualify under some other head of policy; for example, by obtaining a Ministry of Labour voucher. There are certain other circumstances covering visitors, students and persons of independent means. The rules are set out in the instructions to immigration officers, Cmnd. 3064, which spread the net fairly widely and show the element of compassion exercised by my right hon. Friend in these matters.
I need not trouble the House by going into the rules covering the admission of other categories. We are today dealing with a request that a young man, now aged 20 years and five months, should be allowed to settle and work in this country. The Government have found it essential to regulate the numbers of people who may come here for employment and settlement. Many people regret that this is necessary, although the hon. Gentleman said today, and has mentioned in correspondence, that he recognises, as most hon. Members do, the need for some restriction.
A very large number of Commonwealth citizens would come to this country straight away if the doors were open, and this would create many problems here. I also believe that it would create many problems for the immigrants themselves. Since the Commonwealth Immigrants Act, 1962, came into force in July of that year the intake of Commonwealth citizens has been regulated by means of Ministry of Labour vouchers. Young people of 18 and over wishing to come here to work


must be in possession of a Ministry voucher, and the rates at which these may be issued are fixed by the Government from time to time. Since August, 1965, they have been issued at the rate of 8,500 a year, but the demand for these vouchers greatly exceeds the number that we can supply. Many applicants must wait a considerable time.
It would make it difficult for the Minister of Labour if he were to consider compassionate issues and not apply the principle of first come, first served. If he were to consider a special category in this matter and place such people at the head of the queue, those who had been waiting for vouchers would be placed behind them in the queue and would be likely to feel that they had a case for complaint. Because of the pressure from overseas, we are constantly asked by people who want to settle in employment here to be absolved from the voucher requirement or to be given special priority —in other words, they should be allowed to come in immediately rather than having to wait until their turn comes in the voucher queue. If we were to grant every such application we would rapidly undermine the voucher scheme. We must be fair and consistent in enforcing the voucher requirement and in the way in which we grant dispensations, which are granted from time to time.
Mr. White, senior, and the hon. Gentleman are asking us to make an exception in favour of Mr. White's son. The facts are not in dispute. The war service of Mr. White, senior, is greatly appreciated and I am glad that the hon. Gentleman paid tribute to it. Mr. White and his wife are welcome—I will not say "visitors"—arrivals. They are British people and we hope that their life here will be happy. As I said, I am sorry to hear of Mr. White's present ill-health.
As the hon. Gentleman pointed out, Mr. White, senior, is an Anglo-Malaysian. He has three children, Mr. Errol White, born on 8th February, 1947, and two younger children, both of whom are with him. Mr. White, senior, was registered as a citizen of the United Kingdom and Colonies under Section 6(1) of the British Nationality Act, 1948, and, as a result of his registration, he became eligible to enter this country. So were his two younger children. Mr. Errol White, however, was not.
When Mr. White, senior, obtained his passport in January, 1966, he inquired from the High Commission about the eligibility of his three children. It was made clear to him that his two younger children were eligible, but that his son, who was then aged 18 years and 11 months, was not in view of his age and that he must wait for a Ministry of Labour voucher. I emphasise that the reason why Mr. Errol White was not eligible was because of his age. It was not because he was serving with the Malaysian Forces.
Mr. White, senior, does not dispute that his son Errol could enter by means of a voucher. Indeed, I think that his son Errol himself made application in 1964, although in 1966 application was made on his behalf by Stewart Plastics Ltd., which is in the hon. Gentleman's constituency. As I have said, it sometimes takes a long time for vouchers to materialise. Mr. White, senior, wanted his son to come straight away, instead of having to wait.
Children under 16 are entitled to come to join their parents or only surviving parent. Those aged 16 and under 18 are also freely admitted if coming to join both parents or the only surviving parent. There are occasions when a rigid rule about age would not be appropriate and special circumstances do arise. These are set out in the Comnd. Paper to which I referred, paragraph 28 of which states:
The general rule is that persons of eighteen or over must qualify for admission in their own right, for example as the holders of Ministry of Labour vouchers or as students. But exceptions may be made to this rule. For example, it will be proper to admit an unmarried and fully dependent son or unmarried daughter under 21 who formed part of the family unit overseas if the whole family is coming to settle in the United Kingdom..
The House will see that a young man of 18 who wishes to qualify under this arrangement must satisfy three conditions: first, that he is under 21; secondly, that he is unmarried; and, thirdly, that he is fully dependent on his parents. This is the sort of provision for young men who, either because they are continuing their education or for some other reason—for example, illness—are unable to support themselves.
Mr. Errol White qualified under two conditions—he was under 21 and he was


unmarried. But he was not dependent upon his parents. I do not think that this was ever claimed to be so. The very fact that he himself applied for a voucher in 1964 showed that he was not so dependent. The fact that he served in the Malaysian forces also showed that he was not so dependent.
When the matter was put to my hon. Friend who preceded me in this post, he said that we must look into the circumstances and find out because at that stage we did not know what the circumstances were as they applied to young Mr. White. When we received the information, it was clear to us that there were no special compassionate circumstances relating to Mr. White, junior, which would have led me to advise my right hon. Friend the Home Secretary to make an exception to the agreed rules.
My hon. Friend who preceded me in this post said, in the letter from which the hon. Gentleman quoted an extract, that he did not want to raise hopes. My hon. Friend went out of his way to say that he did not want to raise hopes, but he indicated, quite properly, that he would look at the circumstances. In the light of the circumstances, he reached his conclusion. When the hon. Gentleman put the case to me, I looked again at the facts and reached the same conclusion.
This is not because the Home Office or Ministers at the Home Office are not compassionate. There are cases—the hon. Gentleman quoted one, and there are many others—where a combination of circumstances creates a special compassion need; and, in such circumstances, the rules are put aside for such a person. I do not believe that the circumstances described by the hon. Gentleman fall into that sort of category. I cannot comment on the case the hon. Gentleman made, because I would want to look at it in detail. I remember the case, but not the details of it. I assure the hon. Gentleman that it is not simply because the young man cried.
I fully sympathise with Mr. and Mrs. White in their desire to have their family all together. They no doubt think that their son would be able to help them if he were here and were able to work here. However, it must be recognised that when the parents decided to come to the United

Kingdom it was known, both to them and to their son, that they must have to face separation for a time. It was made clear to Mr. Errol White that he would have to wait for the issue of an employment voucher. So it was not as if the father thought that the boy would follow, or the boy thought that he would soon be here, and then ugly officials stood in the way. The circumstances were known.
At this stage I can, I think, strike a rather more encouraging note. As I said earlier, the application for an employment voucher by Mr. White was made in April, 1966, just over a year ago. It is always difficult to say exactly when a voucher is likely to be issued, because this depends on the fate of applications already in the queue, whether they are granted or not. The Ministry of Labour has told me that the application made by Stewart Plastics Ltd. should be considered within the next few weeks. Provided that the application is approved, the Ministry states that the voucher should then be issued immediately. The Ministry would expect that, if the application is approved, the voucher would be available within the next three months or so.
This is a very hopeful prospect for Mrs. White, junior. I hope that any thoughts that Mr. White, senior, will not see his son again will be put out of his mind. I hope that he will be able to see his son fairly soon within the rules and regulations as we have to apply them. I hope that the hon Gentleman will agree that this will provide a reasonable answer to Mr. and Mrs. White's request and hopes.
I do not think that it would be right to agree to make an exception to the general rule which would enable their son to join them more quickly than I think will be so. There are very many who are anxious to come to the United Kingdom and who have jobs waiting for them, and often families waiting for them. To make an exception in this case would be unfair to those already in the queue, who may have been waiting for a considerably longer time than Mr. White. I hope that the outcome of this debate will, in fact, lead to a family reunion.

The debate having been concluded, Mr. DEPUTY SPEAKER suspended the Sitting until half-past Two o'clock pursuant to Order.

Sitting resumed at 2.30 p.m.

Oral Answers to Questions — RAILWAYS

Victoria Line (Specialised Labour Force)

Mr. Berry: asked the Minister of Transport how many men are employed at working faces on the construction of the Victoria Line; what proportion this represents of the original specialised labour force; and at what rate she estimates that this force will disperse during the coming months.

Sir R. Russell: asked the Minister of Transport if she will give the necessary approvals so that, when construction of the Victoria underground line is complete, work will be available immediately on other underground railway extensions, already planned, for the specialised labour force and equipment used in the tunnelling of that line.

The Minister of Transport (Mrs. Barbara Castle): I understand that 50 face-workers are now employed, compared with a peak level of between 700 and 800. These 50 men will be required until spring next year. I have the advantages of continuity in underground work well in mind, but other factors also must be weighed.

Mr. Berry: The Report of the London Transport Board for 1966 laid particular emphasis on the danger of disbanding these teams, in view of possible extensions to the line. Does not the right hon. Lady agree that an early decision is vital, both because of the consequences of dispersing these men and because of possible delay in completion of the line, which must inevitably add to the final cost of the scheme?

Mrs. Castle: I am anxious to reach a decision as soon as possible. Continuity has been maintained. There is still a nucleus of these workers, and about 60 per cent. of the engineers and technical staff are still in post.

Sir R. Russell: Are there not other tube extensions on which these teams of

men could be used? Is it not essential to keep them employed and make an early decision to go ahead with other works of this kind?

Mrs. Castle: There are proposals for other underground extensions under consideration, but they have not reached a point of preparation which would enable any work on them even to be considered at this stage.

Mr. Lipton: Is my right hon. Friend saying that she does not contemplate using these men for the extension of the Victoria line to Brixton, which is at the top of her list of jobs to be done in London?

Mrs. Castle: What I mean is that we have a nucleus of workers there still, who could be used, and used quickly, when a decision is reached. I hope to announce that soon.

Mr. Webster: Does not the right hon. Lady realise that the obligation to make a decision about further work is her responsibility? Can we not have some urgency here?

Mrs. Castle: I am well aware that the decision now rests with me. It is a very expensive scheme, which would run at a heavy loss of about £1 million a year. Clearly, it must be considered in association with other schemes for helping London Transport as well as other public transport.

British Railways (Deficit)

Mr. Peter Walker: asked the Minister of Transport what is her estimate of the deficit of British Railways for the current financial year.

Mr. Edward M. Taylor: asked the Minister of Transport what estimate she has made of the deficit which will be incurred by British Railways in the current financial year.

Mrs. Castle: It is too early to give a firm estimate of the probable deficit, for this year, but among other things receipts from freight traffic have declined, and in consequence it it likely to be higher than in 1966.

Mr. Walker: Is the Minister aware that the estimate that the deficit will be more than £135 million will be treated with deep


concern in the country? In view of recent articles in the Sun, Sunday Times and other newspapers pointing to specific examples given by railway officials of gross over-manning, will she take urgent steps to look into at least all these examples?

Mrs. Castle: It is true that we must have a progressive streamlining of manpower in the railways, but the hon. Gentleman is being a little unfair as there has been no less than a 32 per cent. reduction in staff since 1962. No one can deny that the railway industry and railway workers have accepted a pretty drastic streamlining as part of modernisation. We should thank them for the way in which they have done that.

Mr. Edward M. Taylor: Does that answer mean that the deficit, which has increased in each of the last three years, is now getting out of control? Has the Minister abandoned all hope of eliminating this huge drain on the economy?

Mrs. Castle: I do not know what the hon. Gentleman means by "getting out of control". The deficit under the Conservative Government in 1963 was £134 million.

Mr. Francis Noel-Baker: Would not my right hon. Friend wish to congratulate the railway unions and workers on the way in which they have taken the cuts in personnel? Further, can she say what proportion of British Railways freight traffic consists of coal and iron ore and by how much has this declined during the current year?

Mrs. Castle: I entirely agree. Hon. Members opposite do not help towards happy industrial relations by constant sniping at the railway workers, who have had to face these reductions but have done so in a very patriotic spirit. They realise very well that there will have to be more streamlining still if we are to make this industry give a proper standard of life.
The answer to the second part of my hon. Friend's supplementary question is 61 per cent. There has been a reduction in coal freight traffic systematically over the last few years. This is continuing and has added greatly to the difficulty.

Mr. Manuel: Has the liner train service continued to expand? Does not my

right hon. Friend agree that this growth point is one that could replace the loss of traditional traffic?

Mrs. Castle: I entirely agree. It is our aim to promote the freightliner traffic as much as possible. There has continued to be an encouraging growth. Whereas in January the railways were carrying 1,200 containers a week, the figure is now over 1,800. We are planning a great expansion of the terminals.

Mr. Boyd-Carpenter: As the deficit is higher than the cost of taking 6d. off the Income Tax, which the Chancellor of the Exchequer refused us last night, can the right hon. Lady at least give an undertaking that the deficit will be substantially reduced in future years?

Mrs. Castle: In the Joint Steering Group studying future financial prospects and developments, we have the best instrument for years for enabling us to tackle the deficit in an imaginative and constructive way.

Mr. Mapp: Will my right hon. Friend confirm that at least two-thirds of the deficit is due entirely to social costs, which should be borne in mind when considering the deficit?

Mrs. Castle: There are Questions later about the social cost element of railway traffic.

Mr. Ron Lewis: What has been the increase in passenger receipts? Is it in any way due to electrification?

Mrs. Castle: I am glad to be able to tell the House that there has been an encouraging increase in passenger receipts. In 1966, they were £6 million higher than in 1965 and are up by another £1 million in the first four months of this year compared with the corresponding period last year. I cannot say exactly what proportion of this is due to electrification but we have all welcomed the success of the electrified service.

Mr. Peter Mills: Will the right hon. Lady bear in mind that the deficit could be considerably reduced if the British Railways Board tried to win back the meat and milk carrying trade which it lost to road transport, particularly in the South-West, solely through inefficiency?

Mrs. Castle: The recent news that British Railways has won a £500,000


contract for moving meat from Aberdeen is a sign that it is developing all the possibilities in this direction. This is one of the encouraging prospects which come from the development of the freightliner system.

Railway Finance (Joint Steering Group)

Mr. Galbraith: asked the Minister of Transport when she expects the committee at present examining railway finance will report; and whether the report will be published.

Mrs. Castle: I hope that by midsummer the Joint Steering Group will have reported on those aspects of their remit which are likely to affect forthcoming legislation.
It is not intended to publish the Group's reports as such.

Mr. Galbraith: Would the right hon. Lady explain why it is not intended to publish the Group's reports? How is it possible for hon. Members to judge whether the money expended on keeping open social schemes is justified if they do not know the cost?

Mrs. Castle: The second part of the hon. Gentleman's question does not follow from the first. I cannot anticipate what the report will contain. It may well include discussion of the Board's organisational structure and commercial policies, which it would not be appropriate to publish in full. Therefore, I cannot guarantee that this can be published. Certainly the implications of the report will be fully represented in my legislation and the reasoning on which I base it will be made known to the House in a White Paper.

Sir G. Nabarro: Is the right hon. Lady satisfied with a loss of £130 million by the railways during the last operating year?

Mr. Peter Walker: They are more this year.

Sir G. Nabarro: Of course, they are. Is not that an essential ingredient in the matter of railway finances? Why should we be taxed so heavily to pay for railway losses?

Mrs. Castle: The hon. Gentleman can have only recently entered the Chamber,

because he has just missed a very lively discussion of the deficit. One of the major purposes of setting up the Joint Steering Group is to examine organisational problems and commercial policy implications with a view to reducing the deficit.

Mr. Spriggs: When considering the Railways Board's finances, will my right hon. Friend also consider the social service which the Board provides for the community?

Mrs. Castle: Yes, certainly. Here, again, one of the things which the Joint Steering Group is undertaking is a study of those lines which are socially necessary, but not commercially viable, and to present to me policies on the principle of giving a subsidy to them.

Mr. Peter Walker: Can the right hon. Lady undertake to persuade her right hon. Friend the Leader of the House to allow a debate as early as possible on the railway accounts for 1966, which we have not debated, as that would be a debate which would enable us to discuss this and the frightening news that the deficit is going up still further?

Mrs. Castle: As the hon. Gentleman knows, the business of the House is arranged by my right hon. Friend in consultation with the usual channels.

Railway Workshops

Mr. Galbraith: asked the Minister of Transport whether it is her policy that investment in British Railways' workshops should show a comparable return to what might be expected in private industry.

Mrs. Castle: I satisfy myself that the investment is economically justified. The rate of return on individual projects will vary according to circumstances, as it does in private industry.

Mr. Galbraith: That Answer is not satisfactory. Does the right hon. Lady consider at the time whether every investment which she authorises would give the same return as the money would get if it had been invested in private industry, or are there considerations other than the financial return at the back of her mind?

Mrs. Castle: I made it perfectly clear that the railway workshops are capable of competing on a fully commercial basis.


That is the policy and the railway workshops themselves would not want anything else.

Mr. Tom McMillan: Would not my right hon. Friend agree that not only can British Railways workshops compete with private enterprise price-wise but that the quality of containers produced by the Glasgow workshops is probably the finest in the country?

Mrs. Castle: There is no doubt at all that in the production of containers the Railways Board can compete with anybody.

Sir C. Osborne: I welcome the right hon. Lady's assurance that these railway workshops will be operated at a profit, but why should she assume that this section of the railway system can be made to work at a profit when all the other parts have continually made losses?

Mrs. Castle: It is not true that all the other parts have continually made losses. Nevertheless, we keep the accounts separate and we are therefore able to satisfy ourselves on this.

Mr. Francis Noel-Baker: Can my right hon. Friend explain why the hon. Member for Glasgow, Hillhead (Mr. Galbraith) pursues this vendetta against railway workshops? Is it not a fact that when he was at the Ministry of Transport the railway workshops were grossly penalised, whereas incompetent and often financially unstable private firms were favoured and supported by the Tory Party? Have we not had enough of this kind of allegation? Does not the Minister know that the railway workshops would be delighted to publish separate accounts and to have them investigated down to the last penny?

Mrs. Castle: I entirely agree that hon. Members opposite have never believed in fair competition for the nationalised industries.

Mr. Galbraith: Is not the right hon. Lady aware that I have not pursued a vendetta against the railway workshops? The vendetta has been against the right hon. Lady for not giving the full facts.

Mr. William Hamilton: asked the Minister of Transport what steps she intends to take to safeguard the future of railway workshops situated in development areas.

Mr. Adam Hunter: asked the Minister of Transport if she will give a general direction to the Railways Board that no further closures of railway workshops are to take place without prior public inquiry and subject to her consent.

Mrs. Castle: The future of particular workshops is a matter for the Railways Board and it would not be appropriate to issue a general direction. The Board has always appreciated the need to take account of the effect of major changes on the development areas and keep in close touch with the Government when such changes seem likely.

Mr. Hamilton: Does my right hon. Friend realise that there is a good deal of disquiet in Fife at the projected running-down of the railway workshops in Town-hill and, in view of the fact that about £750,000 has been recently spent on these workshops, does she not agree that it would be a great tragedy if this run-down, still more the closure of these works, took place at this particular time?

Mrs. Castle: I am aware of the disquiet to which my hon. Friend refers. I understand that the Railways Board is still consulting its Scottish Region on the future of this workshop, and it is too soon for me to be able to say anything.

Mr. Hunter: Is my right hon. Friend aware that the railway workshop at Townhill is one of the most efficient workshops in the country? I understand that it can work at a cost of one-third less than that of any other workshop in the country. Would not the Minister agree that something should be done urgently to dispel the idea that this workshop should close?

Mrs. Castle: I am sure that the Railways Board would not lightly discard any asset which was valuable and likely to earn a profit.

Rail Link (Shrewsbury—London)

Sir J. Langford-Holt: asked the Minister of Transport, in view of the number of representations she has received concerning the virtual severing of the direct rail link between Shrewsbury and London, whether she will hold joint consultations with the West Midlands Economic Planning Council and the Welsh Economic Planning Council to report on the implication of these cuts.

The Joint Parliamentary Secretary to the Ministry of Transport (Mr. John Morris): No, Sir. The statutory machinery of the Transport Users Consultative Committee is already available to consider representations of this nature, and they have power to make recommendations to my right hon. Friend if they see fit, through the Central Transport Consultative Committee.

Sir J. Langford-Holt: Is the hon. Gentleman aware that the proposals for British Railways with regard to this part of the country involve the virtual cutting off of the whole of the West Midlands and mid-Wales? Has he no proposals on sociological grounds for altering the arrangements?

Mr. Morris: I am aware of the circumstances to which the hon. Member has referred, but I would also point out that the existing machinery for making representations on the quality of services has not been used.

Oral Answers to Questions — ROADS

Rural Roads (Dual Carriageway Conversion)

Mr. Dance: asked the Minister of Transport what progress has been made

ROADS SUBJECT TO A 50 M.P.H. SPEED LIMIT WHICH HAVE BEEN OR WILL BE CONVERTED TO DUAL CARRIAGEWAYS OR WILL BE BYPASSED


Roads subject to 50 m.p.h speed limit
New construction (2)
Under construction (2)
Infirm Programme (2)
Preparation Pool (for early 1970's) (2)



Dual carriageway
Bypass
Dual carriageway
Bypass
Dual carriageway
Bypass
Dual carriageway
Bypass
Total mileage Cols. (2)-(5)


386 miles
8·75 miles
3·5 miles
5·75 miles
4·25 miles
29 miles
47·75 miles
16 miles
4·25 miles
119·25 miles


Note: By-passing includes those restricted roads which have now been or will be superseded by motorways.

Road Construction (Noise)

Mr. Winnick: asked the Minister of Transport what progress is being made on proposals to lessen noise during road construction.

Mr. Morris: There have been a number of recent developments in the use and design of equipment. These include the introduction of quieter compressors and piling methods, and the wider use of hydraulically operated machines, mufflers, prefabricated bridge sections and central mixing plant for concrete.

in converting to dual carriageway those stretches of single carriage-way rural trunk roads and important rural classified roads, which had a speed limit of 50 miles per hour imposed on them in 1965 because of their bad accident records.

The Joint Parliamentary Secretary to the Ministry of Transport (Mr. Stephen Swingler): Dualling, or by-passing, of these lengths of road will be governed by the criteria applicable to the programming of new road construction generally.
With permission, I shall publish in the OFFICIAL REPORT a table showing the present position.

Mr. Dance: Does not the imposition of a 50 m.p.h. limit on these roads prove that they are not up to standard and are, in fact, extremely dangerous?

Mr. Swingler: That is so, but there are other criteria, traffic volumes and so on, apart from the danger factor, to be taken into account. When the hon. Gentleman examines the table which will be circulated, he will see that we have under construction or firmly programmed 55 miles for by-passing and 43 miles for dualling, and we shall be considering further lengths shortly.

Following is the table:

Mr. Winnick: Does my hon. Friend realise that this is still a very worrying problem for many people living near places where road construction is taking place? Is he aware, for example, that there is a large flyover being constructed in Croydon and an enormous amount of inconvenience is being caused to my constituents?

Mr. Morris: I am grateful to my hon. Friend for bringing that case to my attention. The Ministry is watching all these technical developments. In the construction of the Hendon urban motorway, for


example, which was recently opened, two unusual measures were taken by my right hon. Friend to ensure that the disturbance to nearby householders was reduced.

Mr. Peter Walker: Is the hon. Gentleman aware that we would prefer a little more noise from road construction and a little less noise about road preparation?

Maybury Hill, Woking (Pedestrian Crossing)

Mr. Onslow: asked the Minister of Transport what representations she has received concerning the provision of a pedestrian crossing at Maybury Hill, Woking; and what reply she has sent.

Mr. John Morris: My right hon. Friend received a request from the local authority for a pedestrian crossing here. As I told the hon. Member in my letter of 31st May, 1967, we consider that a crossing near the junction with Princess Road is justified. The local authority has been informed.

Mr. Onslow: That news is welcome after all this time, and it has been welcomed, but is the Minister aware that the snail's pace at which his Department moves in these matters is inexcusable? Why did the Department make no effort to bring to the attention of local authorities that the criteria for pedestrian crossings had been revised?

Mr. Morris: I can completely rebut the charge that the Department moves at a snail's pace in these cases. The hon. Member wrote to the Ministry at the end of January. The divisional road engineer visited the council in February and discussed the type of information required from it by way of counts. Later, in May, the council asked him to expedite the matter and he replied that no information had been received from it. As soon as the information was received he visited the site within a matter of days and a decision was taken. I must rebut the charge made by the hon. Member.

Mr. Onslow: In view of the unsatisfactory nature of that reply, I beg to give notice that I shall raise the matter on the Adjournment at the earliest opportunity.

Road Schemes (Preparation Pool)

Mr. Mawby: asked the Minister of Transport what is her budgeted estimate of the expenditure on those roads already stated by her to be in the preparation pool for the county of Devon for the year ending 31st March, 1968.

Mr. Ridley: asked the Minister of Transport what is her budgeted estimate of expenditure upon those roads already stated by her to be in the preparation pool for the county of Gloucestershire for the year ending 31st March, 1968.

Mr. Grieve: asked the Minister of Transport what is her budgeted estimate of expenditure upon those roads already stated by her to be in the preparation pool for the county of Warwick for the year ending 31st March, 1968.

Sir S. McAdden: asked the Minister of Transport what is her budgeted estimate of expenditure upon those roads already stated by her to be in the preparation pool for the county of Essex for the year ending 31st March, 1968.

Mr. Jennings: asked the Minister of Transport what is her budgeted estimate of expenditure upon those roads already stated by her to be in the preparation pool for the county of Staffordshire for the year ending 31st March. 1968.

Mr. Peyton: asked the Minister of Transport what is her budgeted estimate of expenditure upon those roads already stated by her to be in the preparation pool for the county of Somerset for the year ending 31st March, 1968.

Captain W. Elliot: asked the Minister of Transport what is her budgeted estimate of expenditure upon those roads already stated by her to be in the preparation pool for the county of Surrey for the year ending 31st March, 1968.

19. Mr. Walters: asked the Minister of Transport what is her estimate of expenditure for those roads announced as being in the preparation pool for the county of Wiltshire for the year ending 31st March, 1968.

Mr. Crouch: asked the Minister of Transport what is her budgeted estimate


of expenditure upon those roads already stated by her to be in the preparation pool for the county of Kent for the year ending 31st March, 1968.

Mr. Holland: asked the Minister of Transport what is her budgeted expenditure upon those roads already stated by her to be in the preparation pool for the county of Nottingham for the year ending 31st March. 1968.

Mr. More: asked the Minister of Transport what is her budgeted estimate of expenditure upon those roads already stated by her to be in the preparation pool for the county of Shropshire for the year ending 31st March, 1968.

Mr. Alison: asked the Minister of Transport what is her budgeted estimate of expenditure upon those roads already stated by her to be in the preparation pool for the West Riding of Yorkshire for the year ending 31st March, 1968.

Mr. Rippon: asked the Minister of Transport what is her budgeted estimate of expenditure upon those roads already stated by her to be in the preparation pool for the county of Northumberland for the year ending 31st March, 1968.

Mr. Peel: asked the Minister of Transport what is her estimate of expenditure upon those roads already stated by her to be in the preparation pool for the county of Leicester for the year ending 31st March, 1968.

Mr. Swingler: As was clearly explained in the announcement of 21st February, schemes in the preparation pool will be considered for inclusion in the trunk road works programme for the early 1970s, as and when the preparatory work on them is sufficiently advanced. As regards the costs of preparation, the sums to be spent on individual schemes during this preparatory period are relatively small and not readily separable.
There will, of course, continue to be some current expenditure on the maintenance of the trunk roads affected by schemes in the preparation pool and there may, in some cases, be expenditure on small improvements. Separate estimates of this expenditure attributable to the individual sections of trunk roads to be improved or relieved by schemes in the preparation pool are not readily available.

Mr. Mawby: Does not that answer suggest that the right hon. Lady should now stop making these great statements of the amount of money going into the pool and so giving the impression that we have a big road-building programme? In how many years' time shall we have been able to get back to the point which we lost by the reduction in the road programme by the right hon. Lady in 1966? Those are the points to which the hon. Gentleman should apply himself.

Mr. Swingler: The answer is, "No, Sir." I commend to the hon. Member a study of the Lofthouse Reports. If he fundamentally disagrees with them in thinking that we do not need better forward planning and programming of the road schemes, perhaps he would let me know. On the subject of the size of the programme, he may know that in this financial year we have the biggest road programme the country has ever had.

Mr. Ridley: Is the Minister aware that since the pipeline is now choked up it is only natural that he should invent a preparation pool to feed it from? When will he think up a bottomless pit to feed that from, and in which all Socialist dreams can be conveniently buried?

Mr. Swingler: I am sorry to repeat myself. I commend to the hon. Gentleman also a study of the Lofthouse Reports, by those who have examined the matter and recommended to my right hon. Friend—recommendations which she has accepted—better and longer-term preparation of road construction schemes in order that we may get a more flexible system of committing them year by year.

Mr. Holland: Would the Minister agree that a road is a road when it is ready for use? Can he be a little more specific about a starting date for construction on the roads? My own interest is in Nottinghamshire, where there are great needs for better and safer roads than we have at present. We have some very dangerous roads in Nottinghamshire now.

Mr. Swingler: The hon. Member will realise that there is a definite and firm programme of schemes up to 1970–71. What my right hon. Friend has done by the system of the preparation pool is to start the preparation of those schemes


that are clearly desirable well in advance of the date when they will be committed, in order that we have a reservoir of prepared schemes in the early 1970s.

Mr. Alison: Does the Minister appreciate that for all he has said about forward planning, his Department has not done anything about the problem of Ml ending in Leeds in a cul-de-sac, without any satisfactory road to take through-traffic to the North? When is he going to do something about that?

Mr. Swingler: If the hon. Gentleman had put that Question down, I would naturally supply him with the answers. If hon. Members put down Questions about specific sections on our roads we shall certainly supply an answer, but we do not think that time and labour would be justified in producing separate accounts for every section of roads affected by schemes in the pool.

Mr. Hamling: Does my hon. Friend agree that the Opposition are carrying on a foolish campaign, as there is record expenditure on roads this year, and that if he or my right hon. Friend did not give advance information they would be the first to complain?

Mr. Swingler: If my hon. Friend is right and the Opposition are trying to carrying on a campaign designed to show that the road programme is not expanding, they are flying in the face of the facts.

Mr. Webster: In view of the previous Minister's statement when launching the preparation pool on 29th April, 1965, that this could be for a definite period of time—not more than eight years after 1970 at the outside—and in view of the 1965 deferment and the cuts of last year, do those figures still stand firm?

Mr. Swingler: The figures that have been given, of course, stand firm. The preparation pool is something which my right hon. Friend has adopted as a result of "Little Neddy" reports—which hon. Members opposite apparently have not read—examining the techniques of road construction, and showing the need to plan and prepare road construction schemes much further ahead. This is the basic purpose of the preparation pool.

Mr. Edwin Wainwright: Does my hon. Friend realise that, in spite of the heavy

amount of money being spent on roads today, it is insufficient owing to the tremendous backlog which the Conservative Government left this Government? Would he make certain that more money is spent?

Mr. Swingler: My hon. Friend is correct when he is contemplating the fact that only 12 years ago State expenditure on the road programme under a Conservative Government was less than £10 million per annum and this year it will be over £230 million.

Mr. William Hamilton: On a point of order, Mr. Speaker. I do not want to delay proceedings at this point, but I should like to give notice that at 3.30 I shall raise the question of principle concerning the deliberate collusion by hon. Members opposite.

Mr. Speaker: I hope that we shall not pursue it at this moment.

Later—

Mr. Hamilton: I wish to raise a point of order on the matter which arose out of the Minister's answering Question No. 8 and about a dozen other Questions together.
A cursory examination of all these Questions shows that there has been a concerted campaign by a dozen or so Conservative Members to monopolise the greater part of Question Hour to the detriment of other hon. Members. You may recall, Mr. Speaker, that on a previous occasion I was accused of a similar campaign. At that time, your predecessor announced the steps which he would take in the exercise of his discretion to prevent an abuse of that kind.
I would ask you, Sir, to exercise your discretion on this occasion to prevent a repetition of this kind of abuse. Otherwise, counter-measures are bound to be taken by some of us on this side of the House.

Mr. Speaker: I am grateful to the hon. Gentleman for postponing his point of order until the end of Question Time. This gave an hon. Member an opportunity of having the Question answered which would not have been answered if we had taken up the time of Question Hour on a point of order.
I am interested in the historical reminiscences of the hon. Member. I have to strike a balance between the legitimate claims of both sides of the House and groups of hon. Members on both sides of the House to press rather vigorously at Question Time a point which they wish to make, either separately or concertedly, and the very serious matter which the hon. Gentleman has raised of a campaign reaching such a degree that it would monopolise Question Time.
I had those points in mind when I looked at the number of Questions—I think that it was 12 or 13—asked of the Minister of Transport on very similar lines. I do always keep these considerations in mind.

Gants Hill, Ilford

Mr. Arnold Shaw: asked the Minister of Transport (1) what progress has been made in the study by her Department into the possibility of providing ramps at the Gants Hill, Ilford, roundabout; and whether she will make a statement;

(2) what progress has been made in her consultations with the Redbridge Borough Council and London Transport on the question of the provision of ramps at Gants Hill, Ilford, subway.

Mr. Iremonger: asked the Minister of Transport if she will make a statement about the progress of discussions between her Department and the Redbridge Borough Council and the London Transport Executive about ramps at Gants Hill, Ilford.

Mr. John Morris: Ministry engineers attended a site meeting on 12th May with officers of the London Borough of Redbridge and representatives of the Police and London Transport Board, at which possible sites for ramps were considered. Space for ramps is restricted and their construction may involve moving cables and mains. Investigations are in progress on the practicability and cost of providing them.

Mr. Shaw: I am sure that everyone in the district, particularly those with young children, will warmly welcome that reply. Can we be assured that there will be no delay in carrying out the work?

Mr. Morris: I welcome my hon. Friend's remarks. I know the concern which has been expressed in the area. We have invited the borough engineer to submit a scheme. A number of problems have to be canvassed both with the London Transport Board and the local authority. This is a difficult problem but I hope that the utmost expedition will be shown.

New Road Proposals (Farm Development)

Mr. Charles Morrison: asked the Minister of Transport if she is aware of the threat to the development of farms that takes place as a result of the publication of the route of a proposed road; and if she will arrange for appropriate compensation to be paid.

Mrs. Castle: There may be some cases in which farmers—and others—may feel inhibited from developing or improving their property in certain ways after publication of new road proposals—and of proposals for other kinds of public works. But it is hypothetical to suggest that actual losses result, for which compensation could reasonably be calculated.

Mr. Morrison: Is the right hon. Lady aware that the value of whole farms is affected by motorway proposals and that the compensation for loss of land for a motorway is inadequate? Is she further aware that the availability of farm support grants for capital improvement is affected by road proposals? What consultation has she had with the Minister of Agriculture about this?

Mrs. Castle: I am aware of the effects which modern developments—not only road improvements but others such as new town developments, power stations and airfields—can have on land and farms. But it has been established on more than one occasion that, to do what the hon. Gentleman asks, would mean a very big extension of the whole compensation principle in directions where the calculations must be purely hypothetical.

Channel Tunnel

Mr. Crouch: asked the Minister of Transport if her consideration of the Channel Tunnel project includes plans


for a motorway between the Tunnel and London and the other motorway trunk systems.

Mrs. Castle: I have nothing to add to the Answers given to the right hon. Member for Ashford (Mr. Deedes) on 14th December and 10th May.—[Vol. 738, c. 92–3; Vol. 746, c. 234–5.]

Mr. Crouch: Could I persuade or even charm the hon. Lady [HON. MEMBERS: "Oh."]—at least I can try—because I feel that she has in the back of her mind, if not in the forefront, an appreciation of Britain's intention to take part in the E.E.C., which must generate a great deal of traffic to the South-East? I feel that the present arrangement is not sufficient, if the Channel Tunnel project comes about, to deal with the volume of traffic involved.

Mr. Speaker:: Order. The hon. Gentleman must charm Mr. Speaker by being brief.

Mrs. Castle: I entirely agree with the hon. Gentleman that, if we are to have a Channel Tunnel, we must improve the roads that give access to it. We have this very much in mind. The road mainly affected is the A20 and this is being improved, partly in the existing programme. Further improvements have been included in the initial list of schemes for the preparation pool which I announced on 21st February.

Mr. Deedes: Does the right hon. Lady yet know where the Channel Tunnel is to end and where this road will begin?

Mrs. Castle: Until we have reached a final decision on whether the tunnel is to be built and on who is to finance it, I do not think that I would like to go to the stake on that reply.

Mr. Mapp: In studying this matter, will my right hon. Friend bear in mind that, important as major communications with London are, it is even more important that the rest of the country should be able to avoid London by an outer ring road from the South-East, serving the Midlands, the North and Scotland? This is essential.

Mrs. Castle: I agree with my hon. Friend. Obviously, we must ensure that road links with the rest of the country are adequate as well. There are a number

of roads to be considered, including links with the Ml and the Al to the North and the M4 and the A3 to the West.

Traffic Signals (Hampton Court)

Mr. Tilney: asked the Minister of Transport whether she will see that traffic signals are operative during weekends, at the exit from Bushey Park opposite the Lion Gates of Hampton Court Palace.

Mr. Swingler: This is a matter for the Greater London Council as traffic authority, who are already considering how best to improve traffic conditions in the vicinity of Hampton Court, possibly by the installation of traffic signals at the Hampton Court roundabout and the exit from Bushey Park.

Mr. Tilney: Would the Minister bear in mind that there are many visitors from overseas who want to go to Bushey Park and Hampton Court and at the weekends it is almost impossible to do so except on foot?

Mr. Swingler: I realise that this is a serious point of congestion, but this junction cannot be dealt with in isolation. We have had many discussions with the G.L.C. about it and we are hoping that the scheme it has in mind for the roundabout will be a great step forward in getting rid of congestion.

Road Improvements (Expenditure)

Sir D. Renton: asked the Minister of Transport what is the total amount of expenditure to which her Department and highway authorities are committed for major works of road improvement; and within what period she expects those works to be completed.

Mr. Swingler: Current commitments in respect of expenditure on motorway and trunk road schemes and of grants promised to other highway authorities for classified road schemes amount to about £340 million. Most of these works are likely to be substantially complete within three years.
We have no records of the overall commitments incurred by other highway authorities.

Sir D. Renton: Will the hon. Gentleman bear in mind that the public want


to know the reality of these figures? Will he not consider publishing annual completion dates, thereby splitting up the total of the three-year forward programme so that the public will know what the reality is as a matter of annual achievement?

Mr. Swingler: I think the assiduous reader of HANSARD can find most of these figures. The reality about these figures is that the programme expenditure by the State on new construction this year is £233 million. The figure for which the hon. Gentleman asks covers those schemes for which financial approval has already been given. That obviously goes further ahead than the current financial year. As financial approval is given to schemes committed to the programme, these schemes are announced and therefore the information is available to the public.

By-pass (Beverley)

Mr. Wall: asked the Minister of Transport if she will make a statement on the progress of the by-pass for Beverley.

Mr. Swingler: The Beverley by-pass has been included in the trunk road preparation pool and preparation work has started. When a detailed design and an accurate cost estimate have been prepared, it will be considered for inclusion in the programme for the early 1970s.

Mr. Wall: To what degree does the by-pass depend on the completion of the new Hull-Beverley trunk road? Will the Parliamentary Secretary publish estimates of the time to be taken for the various parts of the programme for completing the by-pass?

Mr. Swingler: This depends on the speed with which the preparatory work can be done. As the hon. Gentleman will know, there is a diversion connected with this. A soil survey has been carried out and will be reported, I understand, to the East Riding County Council either later this month, or in July. An engineering survey will then be undertaken and preparatory work will go forward as quickly as possible.

River Humber (Bridge)

Mr. Wall: asked the Minister of Transport what estimates she has made of the time required to complete the

proposed bridge across the Humber, assuming an immediate decision was taken to go ahead and that the work was put in hand at once.

Sir C. Osborne: asked the Minister of Transport what is the estimated cost, including the approach works, of the proposed Humber bridge; how much the annual maintenance cost will amount to; how long it will take to complete; when it will start; and if she will place a copy of the plan and the engineer's report in the Library.

Mrs. Castle: The estimated cost of the bridge and approaches is about £13 million, annual maintenance may amount to £40,000 and the works would take about seven years to complete if a decision was taken to go ahead immediately.
The start is dependent on Government decisions following completion of the current planning studies on the development of Humberside.
Plans were deposited in the Private Bill Office for the purpose of the Humber Bridge Act, 1959. A report by consultant engineers was made in September, 1955, to Hull Corporation. If the hon. Members wish to see this report, I suggest that they approach the Corporation.

Mr. Wall: Does not the right hon. Lady agree that further delay in setting in motion the study for this bridge will lead to increased costs and increased congestion? Does not her reply justify starting on this scheme, particularly in view of the Government's decision to apply to join the Common Market?

Mrs. Castle: We have always made it clear that we are awaiting the development study of the Humberside Region and a report should be available towards the end of this year. A decision on the bridge will then take its place among the decisions on that report.

Sir C. Osborne: Why should hon. Members be asked to go to a local authority to see plans as important as this and not to have them placed in the Library? Surely we are entitled to be able to see the plans in the House. Secondly, will the right hon. Lady bear in mind that the ports both north and south of the Humber require road


improvements—my hon. Friend has mentioned that at Beverley—and that several are far more important than the building of the bridge? Will she look at this matter again from that angle?

Mrs. Castle: If the report were my property, I would be only too delighted to place a copy in the Library, but it is the property of the Hull Corporation to which the report was made, which is why I asked hon. Members to approach the Corporation.
It is because there are various implications for road schemes that we must await the outcome of the develoment study.

Mr. McNamara: Is my right hon. Friend aware that on Humberside we welcome the extra emphasis that has been put on to the east-west roads in this period? Can she give an undertaking that, while we are awaiting a decision about the bridge, and before the bridge is operational, important rail links, like those between Barton-on-Humber and Humberside and Grimsby, which are essential to the economy of the area, will not be closed?

Mrs. Castle: We try to keep all the aspects of the transport requirements in mind.

Sir C. Osbome: In view of the unsatisfactory nature of that reply, I beg to give notice that I shall seek leave to raise this matter on the Adjournment at the earliest opportunity.

Sir C. Osborne: asked the Minister of Transport if she will call for an estimate of the cost of building an immersed concrete tube tunnel under the Humber, with the estimated savings in maintenance, before she authorises the building of a traditional Humber bridge.

Mr. Swingler: The possibility of an immersed concrete tube was examined and rejected before the Humber Bridge Board was given powers, in the Humber Bridge Act, 1959, to build a bridge. I will however, draw the attention of the local authorities concerned to the hon. Member's Question, in case subsequent developments in technique are considered to justify further examination of this alternative.

Sir C. Osborne: Could the Parliamentary Secretary say whether the Government saw these plans for a submerged tunnel, which he says have been rejected, or are the Government proposing to act on these recommendations, on plans drawn up by local government that does not have the kind of money to implement them, as in the case of the bridge?

Mr. Swingler: The hon. Gentleman is not correct in either case. These plans were considered by expert consultants, who reported against the idea of an immersed concrete tube. This is a local authority project about which we are talking, and therefore the suggestion made by the hon. Gentleman that this should be reviewed will naturally be referred to it.

Mr. Wall: Could the hon. Gentleman say whether the suggestion of a barrage with the road on top has been considered?

Mr. Swingler: That does not arise on this Question, but I will certainly investigate this and write to the hon. Gentleman.

Thetford Inner Relief Road

Mr. J. E. B. Hill: asked the Minister of Transport why the construction of the Thetford inner relief road has not yet begun.

Mr. Swingler: A compulsory purchase order was made in March this year. That completed the statutory processes. Arrangements could then start to rehouse the tenants of properties which must be demolished. These are in hand and we hope that construction can start in the autumn.

Mr. Hill: Is the Parliamentary Secretary aware that this measure of interim relief, which was supposed to bridge the gap before a by-pass proper could be constructed, has taken a very long time? Would it not be possible to authorise an earlier start, since the borough council was fully confident that it could carry out any rehousing required very quickly?

Mr. Swingler: I am concerned about this just as much as the hon. Gentleman. There has been a long delay, and there have been special difficulties about a pedestrian subway, about the acquisition of common land and about the special


river crossing. This has made the statutory processes in this case particularly complex. The date given is probably the earliest that this can be done, but I can assure the hon. Gentleman that we will try to speed this on as much as possible.

Motorways

Sir clive Bossom: asked the Minister of Transport how many miles of motorway will be included in the pool of new trunk road schemes to be prepared for the first half of the 1970s; and what will be the total mileage of motorways in Great Britain when these schemes have been completed.

Mr. Swingler: It is too soon to say. Decisions on the standard of construction for many of the schemes are dependent upon further investigations of estimated traffic volumes, costs and benefits, which are an essential part of the preparation pool arrangements.

Sir Clive Bossom: Can the Parliamentary Secretary say when we are to get the 2,700 miles of motorway and express ways which the County Surveyors Society maintain are essential for this country? Is it not a fact that fewer miles of motorway are being built at present than at any time during the past two years—150 miles compared to an average of 170 miles since 1965?

Mr. Swingler: My right hon. Friend has reiterated recently that we are all set to achieve 1,000 miles of motorway by the early 1970s. The hon. Gentleman will have seen that some motorway projects are included in the pool, for example, the South Orbital. Others will clearly be built to motorway standards, but not until all of these schemes have been examined shall we see exactly how many miles of this will come under the category of motorways as such.

Thirsk-Stockton Road

Mr. Turton: asked the Minister of Transport what is the theoretical traffic capacity of the A19 trunk road between Thirsk and Stockton for passenger car units and for commercial vehicles, respectively, per day; and what was the actual load carried of these categories in this section on the latest convenient date.

Mr. Swingler: The design capacity of this road is 6,000 passenger car units per

day for the two-lane sections of this road and 25,000 passenger car units per day for the dual two-lane section: commercial vehicles are not considered separately in design capacity. Traffic counts at four points, taken in mid-August, 1965, gave average daily flows between 6,995 and 12,547 passenger car units for the two-lane sections and 12,522 for the dual two-lane section. The volume of commercial vehicles varied between 1,586 and 2,620 vehicles per day on the two-lane sections and 2,350 on the dual two-lane section.

Mr. Turton: Will the Parliamentary Secretary give early and serious consideration to the alarming accident record on this section of road, because it is quite inadequate for the number and weight of vehicles using it, as shown by the reply?

Mr. Swingler: Yes, this is fully recognised, and, as the right hon. Gentleman knows, the entire length of the trunk road A19 from Sunderland to Thirsk and south-westwards up the A168 is now programmed to be converted to dual carriageway. It is being done section by section and all these sections are programmed between now and 1970.

Oral Answers to Questions — TRANSPORT

West Midlands Passenger Transport Co-ordinating Committee

Mr. Dance: asked the Minister of Transport whether she will reconsider the present membership of the West Midlands Passenger Transport Co-ordinating Committee, with a view to correcting the existing imbalance, whereby most members are from the conurbation but most of the area is outside the conurbation.

Sir G. Nabarro: asked the Minister of Transport why she has refused to appoint representatives from the County of Worcestershire on the West Midlands Transport Co-ordinating Committee; what representations she has had in this regard from the Worcestershire County Council; what reply she has sent; and whether she will make a statement.

Mrs. Castle: The members of the West Midlands Committee, like those of the committees for all the other regions, were appointed by me on the nomination of


the Regional Economic Planning Council and of a number of other representative organisations, including the County Councils Association and the Association of Municipal Corporations. The aim was to get the right blend of experience and knowledge of the transport needs of the region as a whole. It was inevitable that, as Birmingham is the regional centre of the West Midlands, some of the members who were nominated as regional representatives should live in the conurbation area. It would not be possible to have separate representation from each important local authority in the region without making the committee too large to be really effective. The regional committees will, however, be working through specialist or area sub-committees with which the local authorities and other interests concerned will be invited to co-operate.

Mr. Dance: There are only two members from outside the conurbation. Is the right hon. Lady aware that Alderman Watton, the chairman of this committee, said that, at the outset, it would not consider the problems in the conurbation area and that the problems outside were far greater, affecting far more people? Will not the Minister think again and make new appointments to this committee and so end this unjust and lunatic situation?

Mrs. Castle: If I were to make a new appointment to satisfy the hon. Gentleman, many other local authorities also would wish to be represented, and we should have a totally unworkable committee. The chairman of the West Midlands Committee has already written to local authorities in the region, including the Worcestershire County Council, inviting their suggestions on transport in the area.

Mr. Dance: Yes, but what about outside the conurbations?

Concessionary Fares (Elderly People)

Mr. Winnick: asked the Minister of Transport what progress has been achieved in establishing reduced fares on public transport for elderly people in all parts of the country.

Mr. Molloy: asked the Minister of Transport if she will make a statement regarding the progress made in her dis-

cussions about concessionary fares for retirement pensioners using London Transport.

Mr. David Steel: asked the Minister of Transport if she will now make a statement on the steps to be taken to encourage private bus operators to introduce concessionary fares for old-age pensioners.

Mr. Swingler: My right hon. Friend is studying this matter in the light of the views of local authorities, but she is not yet ready to make a statement.—[Vol. 742, c. 1502.]

Mr. Winnick: Does my hon. Friend realise that many retired people in the Greater London Area feel resentful on this matter because they know that retired people in other areas where the local authority runs the transport services have concessionary fares? Is there Treasury opposition to further progress? Shall we have a definite statement by the end of the year?

Mr. Swingler: I appreciate that there is public opinion in favour of extending the power to grant concessionary fares. We have sought the views of the local authority associations, but there is by no means complete agreement among them on the extension of powers which they would wish. As my hon. Friend suggests, an increase in public expenditure is involved, and the question must, therefore, be considered in relation to other priorities.

Mr. Galbraith: When discussing this matter with the local authorities, did the Minister try to ensure that any scheme produced related reduced fares to ability to pay and was not just overall to people merely because they happened to be old?

Mr. Swingler: The hon. Gentleman is not completely seized of the matter. We are concerned with the possibility of extending the legislation which this Government brought in in 1964 to grant, for social reasons, concessionary fares to certain categories of persons. The question of whether and how this should be done is what we are discussing with the local authority associations.

Mr. Blackburn: Is this problem likely to be met in the legislation which the Minister has promised to bring forward?

Mr. Swingler: As I said, when she entered into these consultations my right hon. Friend promised to make a statement. She is not yet in a position to do so, but she will make a statement on the subject of concessionary fares in the near future.

Mrs. Braddock: Will my hon. Friend consider the system which Liverpool has adopted, under which there is free transport for elderly people holding an aged person's pass, and, before the party opposite took control of Liverpool, arrangements were made by the Labour-controlled local authority to reduce, year by year, the age at which a free pass was given?

Mr. Swingler: I am very interested in what my hon. Friend says. These powers have always been permissive, and their use, therefore, is governed by decisions taken by the members of local authorities which control municipal transport.

Motor Vehicles (Registration Marks)

Mr. Onslow: asked the Minister of Transport what consideration she has given to replacing the present letter and number system of vehicle registration marks, by an all-number system; and if she will make a statement.

Mr. John Morris: The present system was fully reviewed before it was introduced in 1963. A registration system consisting entirely of numbers has some disadvantages, including a smaller capacity and more difficulty in recognition and memorising.

Mr. Onslow: I am sure that the House will agree with the disadvantages the hon. Gentleman has stated, but would he draw the same disadvantages to the attention of the Postmaster-General, because they apply equally to telephone numbers?

London Transport Stations (Car Parks)

Mr. Berry: asked the Minister of Transport how many of the additional car spaces being provided during 1967 at London Transport station car parks will be in multi-storey car parks.

Mr. Swingler: None, Sir.

Mr. Berry: Would not the Minister agree that it will be essential that multistorey car parks are provided at these

stations in order that commuters may travel on the underground? Is not that the only solution? In the construction of multi-storey car parks will he also bear in mind the needs of local residents and the necessity to ensure that commuters use those car parks?

Mr. Swingler: The hon. Gentleman may well be right. This is a matter for the commercial judgment of the Board. In 1965 the Board told the Select Committee that it did not regard it as a commercial proposition because it was not allowed to provide services for motorists. My right hon. Friend has undertaken to deal with that in forthcoming legislation and this may influence future plans of the Board.

Sir R. Russell: asked the Minister of Transport to what extent the station car parks provided in recent years by London Transport for commuters are used to capacity; and how far there has been a reduction of parking in surrounding streets.

Mr. Swingler: I am informed by the London Transport Board that the overall occupancy of their station car parks is about 55–60 per cent. The extent to which parking in surrounding streets is reduced varies from place to place.

Sir R. Russell: Is the hon. Gentleman aware that it varies a great deal in the Wembley part of the Borough of Brent, for example? What plans has he for ensuring that there is less parking in streets where there are station car parks?

Mr. Swingler: As a result of discussions on the Transport Co-ordinating Council, the G.L.C., with the agreement of the Transport Co-ordinating Council, has sent out questionnaires to all London boroughs on the point raised by the hon. Gentleman. This is a serious problem of co-ordination between the boroughs and the London Transport Board and we hope to have further proposals shortly.

Articulated Lorries (Accidents)

Mr. Gwilym: Roberts asked the Minister of Transport what are the latest figures available for the number of accidents caused by the jack-knifing of articulated lorries; and what steps she will take to make the use of devices to prevent jack-knifing compulsory.

Mr. John Morris: I would refer my hon. Friend to the two Answers given to my hon. Friend the Member for Midlothian (Mr. Eadie) on 24th April.— [Vol. 745, c. 208.]

Mr. Roberts: Is the Minister aware that there are now quite efficient devices which can be used to convert an articulated vehicle on braking into a single body? Will the Minister look at this problem urgently to see what can be done to remove this important source of accidents?

Mr. Morris: This matter is being looked at. As I told my hon. Friend, it is being tackled in a number of ways, but there is no evidence as yet to justify regulations requiring any particular device to be fitted. However, improvements have been made as regards a code of practice for the distribution of braking effort and the manufacturers have agreed to follow this code of practice in respect of braking equipment.

Mr. Eadie: asked the Minister of Transport what consultations she has had with trade unions concerned in the jack-knifing of articulated vehicles.

Mr. John Morris: We have had no special consultations with the trade unions on this subject. But it has been discussed in the Working Party on Brakes which includes a representative from the Transport and General Workers' Union. Also, the United Road Transport Union has been made generally aware of what is being done.

Mr. Eadie: My hon. Friend is aware that I put this Question to him some time ago. As a consequence of that I want to make him aware that the trade union has contacted me and it regards this type of accident as slaughter on the roads. Would he not agree that as a consequence of this there is an obligation on the Government to implement proposals to stop this slaughter on the roads?

Mr. Morris: If any organisation or union wishes to make representations to my right hon. Friend or myself I will be willing to arrange discussions with them.

Pillion Passengers (Protective Helmets)

Mr. Gwilym Roberts: asked the Minister of Transport what estimates are available of the proportion of deaths and

serious accidents to pillion passengers which could be averted by their wearing protective helmets; and if she will bring into effect regulations, under Section 41 of the Road Traffic Act, 1962, to make the wearing of helmets compulsory.

Mr. John Morris: If all pillion passengers wore safety helmets there might be 60 fewer killed and between 150 and 300 fewer seriously injured each year. But we prefer to use persuasion to wear safety helmets rather than attempt compulsion.

Mr. Roberts: Would the Minister not agree that whereas the great bulk of motor cyclists and pillion passengers are responsible people, there are a small number who have to be protected against themselves?

Mr. Morris: I am sure my hon. Friend is aware that there is a problem of enforcement. Over the years there has been substantial publicity to persuade people to wear these helmets. Less than 25 per cent. wore them a few years ago. Now more than 70 per cent. of drivers wear helmets. This kind of persuasion and publicity must go on.

Mr. Crawshaw: Would not the Minister, who apparently is not prepared to travel in a car without a safety belt— and rightly so—consider this problem again and see about protecting these people from themselves, because at their age they are not concerned about what damage they may do to themselves?

Mr. Morris: I am willing to look at any suggestion at all times, but I am sure that my hon. Friends are well aware of the problem of enforcement. What is wanted is publicity to persuade these people to ensure that they protect themselves, and the success of the campaign over a number of years has increased substantially the number of people who wear these safety helmets.

North Riding of Yorkshire

Mr. Turton: asked the Minister of Transport (1) what steps she is taking to improve public transport services in the more remote rural areas of the North Riding of Yorkshire, so as to enable the inhabitants to visit centres where a wider choice of social facilities is available;

(2) what steps she is taking to remit or relieve the burden of taxation in public


transport services in remote rural areas to enable the inhabitants of villages and small towns to visit centres where a wider choice of social facilities is available.

Mr. Swingler: Proposals for helping rural transport, as stated in the White Paper on Transport policy, apply to Yorkshire as to other parts of the country. Rural bus operators also share in the taxation reliefs which have been given to the bus industry generally, including refund of lOd. of the fuel tax on stage services and full refund of Selective Employment Tax.

Mr. Turton: Is the hon. Gentleman aware that in my constituency in the last few weeks three rural bus services have had to give up? This is a matter which is really urgent. All the regional reports are recommending early action in order to stop the dispersal of the population from the rural areas into the towns. Will the Minister take early action, because this is very grave?

Mr. Swingler: We are concerned about this, especially in that a mini-bus operator found it impossible to cover his operating costs and decided to give up. This is a matter which should be considered urgently by the regional transport co-ordinating committee, and as the right hon. Gentleman will know, my right hon. Friend has promised legislation to provide for the rural bus grant, to which the Exchequer will contribute 50 per cent.

Urban Transport (Passenveyor System)

Mr. Hector Hughes: asked the Minister of Transport if she has yet considered the Plan for Non-Stop Transportation in Urban Areas, designed to solve the problem of traffic congestion in cities, a copy of which was sent to her by Passenveyor Limited; what steps on the lines of the plan she intends to take; and if she will make a statement.

Mr. Swingler: The Passenveyor System is among those recommended in the Second Report of the Working Party on traffic of the Incorporated Association of Architects and Surveyors. The Department's officials have discussed this report with the Chairman of the Working Party, Possible non-stop passenger conveyor systems, including the Passenveyor, will be considered along with other ideas for urban transport in our developing pro-

gramme of technological research and development.

Mr. Hughes: Does not the Parliamentary Secretary agree that this is a very practical scheme, and that it would be an obvious solution of the congestion in the streets? Will he expedite consideration of this, with a view to putting it into operation at the earliest possible moment?

Mr. Swingler: My hon. and learned Friend may be right, but this proposal has never been put to us, and it has not been suggested that there should be any research and development project about it. We are certainly prepared to consider it and to subject it to scientific examination.

Oral Answers to Questions — PORTS

National Ports Council

Mr. Webster: asked the Minister of Transport whether she will make a statement on the resignation of Lord Rochdale as Chairman of the National Ports Council.

Mrs. Castle: As announced by my right hon. Friend the President of the Board of Trade on 19th April, Lord Rochdale is to be the Chairman of the Committee of Inquiry into Shipping. In the circumstances, Lord Rochdale and I agreed that he should be released from his duties as Chairman of the National Ports Council on the expiry of his present term of office on 14th June.
I am sure that the House would wish to join me in paying a warm tribute to the outstanding services of Lord Rochdale to the ports industry.—[Vol. 745, c. 98.]

Mr. Webster: I join with the right hon. Lady's tribute to Lord Rochdale and point out that this is not the first time that an independent chairman of an advisory body has been removed by the Minister. Is she not aware that this happens immediately before a transport Bill which is to nationalise all the docks simply for doctrinaire purposes and is something that we shall contest very strongly?

Mrs. Castle: It is not a question of Lord Rochdale having been removed.


He was invited to take on this other major inquiry and he himself agreed that he could not do both jobs. He and I agreed that he should conduct the inquiry into the shipping industry. I took this view because Lord Rochdale's inquiry into the ports was so very valuable. I hope that what he did in relation to the ports for the Ministry of Transport he can do in relation to the shipping industry for the Board of Trade.

Mr. Alan Lee Williams: Is my right hon. Friend aware that the dock workers have accepted the policy of decasualisation and a new wages scheme as a step towards more public ownership in the docks, and that it would be disastrous to go back on the Government's pledge to nationalise the docks?

Mrs. Castle: There is no intention of going back on our proposals for the transfer in due course of the docks to public ownership.

Mr. Webster: asked the Minister of Transport what restrictions are placed on the National Ports Council in scrutinising and criticising Government proposals.

Mrs. Castle: None. Sir.

Mr. Webster: Is this Council then to be just a rubber stamp? Is it not deplorable that at a time when the whole industry is to be nationalised the new chairman should be the chairman of an already nationalised industry?

Mrs. Castle: This is just another of those snide innuendoes which we get from hon. Members opposite. The National Ports Council will continue to be entirely free, as it always has been. The new Chairman of the Council, Sir Arthur Kirby, was appointed to his original job as Chairman of the British Transport Docks Board by none other than the right hon. Member for Wallasey (Mr. Marples).

Mr. McNamara: Does not my right hon. Friend agree with me that the new chairman has a most distinguished record in docks administration and that the appointment as such is to be welcomed?

Mrs. Castle: Yes. The British Transport Docks Board has been one of the most successful of our nationalised industries. It pays its own way without Exchequer subsidy.

GOODS AND PASSENGER VEHICLES (DRIVERS' HOURS)

The following Question stood upon the Order Paper:

Mr. MOLLOY: TO ask the Minister of Transport whether she has now completed her review of the law governing drivers' hours; and if she will make a statement.

The Minister of Transport (Mrs. Barbara Castle): With permission, I will now answer Question No. 87.
Yes, Sir. I have considered the views of all the interested organisations and I have reached the conclusion that we need substantial improvements in the present rules governing the working hours of drivers of goods and passenger vehicles which have been in force since the Road Traffic Act of 1930.
I am today publishing proposals for such improvements and copies are being placed in the Library of the House. The main features of my proposals are a daily limit of nine hours on actual driving, limits on the working day and working week for these drivers, and the introduction of a weekly rest day.
After consideration of comments from all interested organisations on these proposals, I propose to introduce legislation to amend the present provisions.
The improvements proposed in the position on drivers' hours form part of our whole policy for improving the safety, efficiency and organisation of the road transport industries.

Mr. Molloy: Is my right hon. Friend aware that the reaction of men who work in this industry and the public generally will be "And about time too"? Is she further aware that this move to rationalise the industry and to bring some sanity into it will not only make it a better industry for the men to work in, but will make a massive contribution to road safety?

Mrs. Castle: I entirely agree with my hon. Friend that, quite clearly, hours of work and hours of driving which were appropriate in 1930 can no longer be appropriate in the changed traffic conditions of today. I think that what I propose will make a useful contribution to


road safety, not least by improving the working conditions of lorry drivers.

Mr. Peter Walker: Is the Minister aware that we welcome any proposals which look after drivers' safety? In her statement she refers to nine hours' driving. Does she mean nine hours' actual driving at the wheel, or does it include loading and unloading periods? Has the right hon. Lady considered the possibility of dispensing with the need to keep drivers' records in respect of, for example, bakers' and milk delivery vans, where there tends to be a good deal of unnecessary bureaucracy?

Mrs. Castle: The number of hours at the wheel will be reduced from a maximum of 11 to a maximum of nine. Where any special interests are concerned, we are now going into detailed consultation on the basis of these proposals, and we shall be glad to examine any particular point.

Mr. Bessell: Does the right hon. Lady agree that it will be difficult to enforce these new regulations, welcome as they may be? What proposals does she have for enforcement and, if necessary, for increasing the size of any particular force which could be used to enable her to do this?

Mrs. Castle: I have very far-reaching proposals to make on enforcement. I agree with the hon. Gentleman that one of the difficulties under the present law is that the existing hours, excessive as they are, are not properly enforced. If the hours are to be reduced, we must have adequate enforcement. I therefore propose to make the introduction of tacheo-graphs in lorries and coaches compulsory, to simplify and improve drivers' own personal hours records over a week and not just a day, and, finally, to improve the powers of my own enforcement officers.

MIDDLE EAST

The Secretary of State for Foreign Affairs (Mr. George Brown): With your permission, Mr. Speaker, and that of the House, I wish to make a statement on the situation in the Middle East.
The House will have heard with satisfaction that the Security Council of the United Nations has now adopted unanimously a resolution calling for a cease-

fire. In this, the House can rightly take pride in the outstanding contribution which has been made by my right hon. and noble Friend Lord Caradon in bringing this result about.
The Council's most urgent task will now be to get this resolution implemented. I was glad to see that the Israel Foreign Minister, in his speech to the Council yesterday evening, welcomed the appeal for the cease-fire, while pointing out that its implementation requires an absolute and sincere acceptance and co-operation of all other parties. It is now for those other parties to make equally clear their acceptance of the call for the cease-fire so that this can come into force without any delay.
I have seen reports that the United Arab Republic and Iraq have rejected the appeal. I hope that they will think better of this very quickly. It seems to be much in their own interest to do so.
Once the cease-fire has been implemented the Security Council will need to turn its most urgent attention to the further steps that are needed to secure a lasting peace in the area. It is too early to speculate in detail about the form that this might take, but I am convinced that there will have to be now a thorough re-examination of all aspects of the root causes of the conflict.
Prior to the implementation of the cease-fire, it is now very clear that the military struggle has been going in favour of Israel. It is evident that in the first 24 hours of the fighting the Israel Air Force established complete air superiority over the Air Force of the United Arab Republic and of its allies.
On the ground, Israel forces defeated United Arab Republic forces in the Gaza strip, and are engaging Egyptian units deep in the Sinai Desert. There has been fierce fighting on the Israel/Jordan front and Israel forces captured a substantial area of Jordan territory on the west bank of the River Jordan.
I am sorry to report that fighting has been particularly bitter in Jerusalem and still continues there. I have no reports of any serious damage to the Holy Places.
The United Arab Republic, through Cairo Radio, has continued to broadcast the downright lie that British and American air forces have taken part in the fighting on the side of Israel. I repeat


that this is a lie. It not only did not happen, but it could not have happened, as it well knows. In the light of the military situation which I have described the reason for this lie is quite clear. The United Arab Republic is trying to give itself an alibi for its own military failures and the extent to which its failures have let down its allies.
The Government have taken every step open to them to deny this action. We have made statements in this House and have issued statements to the Press. We have made both oral and written communications in Arab capitals and to Arab Heads of Mission in London. My right hon. and noble Friend Lord Caradon has spoken in the Security Council and has circulated a written denial to all members of the Council. The United States delegate to the United Nations yesterday offered facilities for United Nations observers to visit ships of the American Sixth Fleet to check the falsity of the story.
I am equally ready to make a similar offer for United Nations observers to visit any of our ships in the area, any of our Royal Air Force stations, including those at Cyprus and our installations at the airfields of Malta. We wish to nail this lie once and for all.
I am sorry to report that the broadcasting of this lie has misled certain Arab countries into taking a series of measures against Britain. My right hon. Friend informed the House of some of these yesterday. The list is now as follows. British embassies, consulates and British Council premises have been attacked and damaged in many Arab cities. The United Arab Republic Government have closed the Suez Canal to all traffic. The Governments of Iraq, Kuwait, Algeria, Syria and the Lebanon have taken steps to interfere with oil supplies, either to the United Kingdom and the United States of America only, or, in some cases, on a wider basis than that.
The Governments of Iraq, Syria and the Sudan have notified us that they are breaking off diplomatic relations: relations, of course, were already broken with the United Arab Republic and

Algeria. It is my sincere hope these Governments will reverse their attitude now that it is clear not only that the allegation was a lie, but it is also clear what the motives of the Egyptians have been in propagating it.
Nevertheless, the Government are having to make suitable arrangements for the protection of British interests if the countries concerned persist in breaches of diplomatic relations. We are in touch with appropriate Governments to act as protecting Powers.
I think that to break off diplomatic relations with us, and for this reason, is the most foolish possible action that these Governments could take. This has been put to them as forcefully as possible. If they insist, they will, of course, have to face the consequences.
Arrangements are also going ahead to evacuate further numbers of British subjects from countries involved in the fighting and from countries which have broken off diplomatic relations. However, in some of these cases a breach of diplomatic relations will presumably not extend to commercial relations and I would expect that, where there is no immediate danger to life and property, many British subjects will still wish to remain.
Urgent steps are being taken to readjust the pattern of oil supplies to this country. While there may well be temporary inconveniences for us, there should be no insuperable problem. The action taken against us has come at a time of oil surplus in the world and the countries which have taken it may find that they have done their own economic interests much greater harm than they have done to ours.
On the question of arms shipments, we are continuing our efforts to achieve a suspension of the export of all arms supplies to this area, and the call for a ceasefire, in my view, reinforces the position we have taken up on this.
However, I am bound to warn the House that the situation at the moment is that we have had no positive response from the Russians and we understand that the Americans are not placing an embargo. In this situation, it makes it very difficult for Britain to maintain the suspension of supplies which we have already unilaterally imposed.
In any long-term agreement which is negotiated, limitation and control over arms exports into this area will clearly be a very important factor.

Sir Alec Douglas-Home: The House will be grateful to the right hon. Gentleman for keeping us informed each day and for the tone in which he has made his statement. We welcome the fact that the Security Council has achieved unanimity on a cease-fire—a very modest beginning, but, nevertheless, a beginning on which we can perhaps build.
Can the right hon. Gentleman say whether Jordan has accepted the ceasefire? There are rumours that she has. If so, it is a very welcome fact.
we shall give the right hon. Gentleman all the help we can to obtain a comprehensive settlement of all the problems in the Middle East. This seems to be the most important thing ahead of us.
The most serious part of the right hon. Gentleman's statement was that which dealt with the reaction of the Arab countries to this country. Is every device of broadcasting being used—particularly the B.B.C.'s Arabic Service, which has a very wide and effective coverage in that area?
We have noted what the right hon. Gentleman has said about an arms embargo. I will not press him further today. It would not be reasonable. He has to have conversations with the United States and the Soviet Union and may hope to get some arrangements. But does he realise the seriousness of the United Kingdom's withholding arms if everybody else is sending them?

Mr. Brown: I am grateful to the right hon. Gentleman for the way in which he has said what he had to say. On the question of Jordan and the cease-fire, the situation is exceedingly confused as to what was originally the Jordanian response and what was the Israeli response to that. I would rather not go into that at the moment, if the right hon. Gentleman would not mind.
I agree that we will have to have discussions, and we are now giving careful thought to the kind of items that ought to figure in a comprehensive settlement.

There will, no doubt, be an opportunity for the House to discuss this, but the immediate thing is to get the cease-fire in order to move from there to the discussions.
About the B.B.C. and all other forms of communication being used, I think that they are, although I have heard suggestions that the B.B.C. services were not being as fully used as perhaps they should have been. I do not know this at first hand, but I am having inquiries made to see whether we can improve what has been done.
On arms, I take complete note of what the right hon. Gentleman has said. I worded that passage in my speech very carefully.

Mr. Thorpe: Is the Foreign Secretary aware that the success of obtaining a cease-fire will not only be welcome for its own sake, but will help to restore the authority of the United Nations?
May I ask him, first, whether he is satisfied that this can be transmitted to the combatants in the field, as opposed to those in control of the Governments? Secondly, is Colonel Nasser still in effective control of the Government of Egypt, and, thirdly, can he say a word about the sterling balances held in London by the Arab States—particularly Kuwait, who, it has been suggested, is trying to transfer them to Switzerland?

Mr. Brown: As far as the United Nations authority is concerned, I deplore the tendency to giggle when it is mentioned. When this Middle Eastern situation has become just one more event in history the creating and building of United Nations authority will still be an outstanding aim of any intelligent, rational Government anywhere in the world. I agree entirely with what the Leader of the Libera] Party has said. Getting the resolution passed is important for its own sake, but it is also important as being a step back from the miserable period—so far as the United Nations is concerned— which has marked the last few weeks.
The right hon. Gentleman asks whether it is being transmitted. Certainly, it is being transmitted to all those in authority and who can make the decisions, and I have no reason to think that they do not know about it.
As to whether President Nasser is in command, all that I can say is that I have no evidence to the contrary. I have seen a statement by a journalist in a mid-day newspaper, but that journalist's past record of accuracy is not such as leads me to give it all that much credence.
On sterling balances, I have nothing to say.

Mr. Shinwell: Can the Government now depart, at least to some extent, from their attitude of neutrality by congratulating the State of Israel and the Israeli forces—[An HON. MEMBER: "Really."] —on having successfully—

Mr. Faulds: Conducted a pre-emptive strike.

Mr. Shinwell: —on having successfully resisted the threat of annihilation? Can the Government not go that far?
If my right hon. Friend is relying on the United Nations in the future to ensure a satisfactory and permanent settlement, can we have an assurance that, so far as our own Government's representations are concerned, there will be guarantees to protect the economy of the State of Israel against economic boycott, and free passage through international waters, including the Suez Canal? Can we have assurances of that kind?
Will my right hon. Friend take it from me that the noises behind me have no effect on my mind whatever? I am not afraid of this crowd. I am not afraid of the Arabs and Nasserites. I am not afraid of anyone. I take sides, and I am on the side of the State of Israel—[Interruption.]

Mr. Speaker: Order.

Mr. Brown: Unlike me, my right hon. Friend does not carry responsibility and is in the happy position of being able to take sides. Were I to make any of the statements which he invites me to make, it is clear that I should make the situation worse in hampering the working out of a settlement and do the cause which he has at heart as much harm as I should do any other cause. Therefore, I do not answer my right hon. Friend on the merits, but that does not mean that I agree with him on the merits, either.
As to the aspects of a long-term settlement, all the points which he mentioned

must be taken into account. However, there are other matters to be taken into account as well. I repeat that this is not a situation in which one can say that all the rights and merits are on one side and in one people's hands only. Before we make partisan statements in this House on behalf of one side—in this case, Israel—let us recognise that the Arabs also have cases and issues to deploy which they are entitled to expect to be heard and treated with respect.
All of these will be taken into account, and that is why I said in my statement that, in the settlement, I believe that we must take a good look at the fundamental and root causes of the conflict. We have had this twice in a decade. I believe that it will be the business of those of us who carry responsibility and, I hope, those who support us, to try to work out this time a settlement which will ensure that we do not have it a third time.

Mr. Sandys: Will the Foreign Secretary begin now to initiate action to secure the setting up of some kind of international force which could police the cease-fire when it takes effect? Secondly, is he now in a position to tell us what is being done to secure the reopening of the Suez Canal?

Mr. Brown: The establishment of anything in the nature of a permanent U.N. force must be one of the aspects of a long-term settlement. However, I believe that getting a cease-fire is the important matter. I do not think that complicating that with arguments about a United Nations force and where it should go at this stage in the battle will help us very much. But it may well be that if we can assure the cease-fire the Secretary General, or a very prominent representative of his, might help the situation by proceeding immediately to the area to ensure that what is said to be going on is, in fact, going on. Thereafter, we can discuss what kind of continuing force there should be.
The right hon. Gentleman has a passionate desire about opening the Suez Canal. I am never very clear how he envisages doing it. I can only say that I envisage doing it by getting a ceasefire and proceeding to negotiate a settlement for the whole area.

Mr. Lawson: Will my right hon. Friend recognise that perhaps the worst thing


which can happen to any people is the feeling of national humiliation? Will he be most generous and sympathetic in this case and do his utmost to show that we are genuinely neutral and wish to be friendly with the Arab people as well as others?

Mr. Shinwell: Mr. Shinwell rose—

Mr. Lawson: Will he also recognise that the Arab people have a genuine grievance against the Israeli nation—

Mr. Shinwell: Mr. Shinwell rose—

Mr. Lawson: —and, on the basis which all of us recognise, try his utmost to heal the sores in this part of the world?

Mr. Brown: This is exactly what I am afraid of. One over-stated, emotional, partisan statement invites the contrary— [Interruption.]

Mr. Rankin: On a point of order, Mr. Speaker. May I ask for your guidance? Are you aware that war has broken out in my immediate neighbourhood? I am not taking sides, either, but may I ask my right hon. Friend the Foreign Secretary to tell us what he proposes to do to stop the war in this House before he goes on to deal with the Middle East?

Mr. Speaker: Order. We are discussing a very serious issue. There are widely differing points of view inside what is probably a fundamental unity. Noise and heat do not help the day at all.

Mr. Brown: I was about to say this when I was interrupted by that point of order. May I remind everyone in the House, if anyone needs reminding, that not only are there vast issues at stake, but that people's lives are at stake. If statements which may satisfy our emotions in the House tend to prolong the conflict outside, they are much to be deplored and denounced.
My hon. Friend the Member for Motherwell (Mr. Lawson) spoke of the feeling of national humiliation. I understand this very well. As a matter of fact, the sense of humiliation since 1956 no doubt has been a factor in what has now happened. I put it no higher than that. I have it very much in mind.

My hon. Friend asks the Government to be friendly to the Arab people and to Arab statesmen. On that, I have as good a record as anyone, and they well know it. I ask them to respond to it.

Mr. St. John Stevas: Will the Foreign Secretary assure the House that the Government will do nothing to deprive Israel of the legitimate fruits of her victory, and that much less will they do anything to prevent the fate overtaking President Nasser which seems likely to reach him in the near future?

Mr. Brown: I am sorry, but I shall not say anything of the kind, and I think that, on reflection, even the hon. Gentleman will think it would have been better if he had not said it.

Mr. Raphael Tuck: When my right hon. Friend looks at the root causes, as he calls them, will he look at the sale early last year of £107 million worth of arms to Saudi Arabia, and consider whether this was not a cause of the intensification of the arms race in the Middle East?
Secondly, will my right hon. Friend look at the whole matter not in the context of one side having a case against the other, but of the determination expressed by one country completely to annihilate the other?

Mr. Brown: My hon. Friend made the latter point the other day, and there is no more that I can say about it. It is my hon. Friend's point of view.
On the question of arms, as I said the other day, we have a better record than most in ensuring that by any supplies which we have sold we have kept the balance of power very much in mind. I think that the balance of power, and maybe this conflict, owes a good deal more to the lack of concern which some other nations have shown in their supplies to the area.

Mr. Dodds-Parker: May I ask the right hon. Gentleman how many ships are held up in transit through the Canal, and what practical steps are being taken by the U.A.R. authorities to stop other ships transiting?

Mr. Brown: I cannot say without notice. The last information I had this morning was that some ships were still


held up, but I do not recall the number, and that efforts were being made to try to ensure that they were allowed to proceed. As I told the House the other day, we have in the meantime advised our shipping to stay away from the entrances to the Canal.

Mr. Mayhew: Would my right hon. Friend agree that one result of the war may well be—

Mr. Shinwell: Go back to Nasser.

Mr. Speaker: Order.

Mr. Mayhew: —to remove the political objections on both sides to a solution of the bitter problem of the Arab refugees? Is my right hon. Friend aware that this country has had a good record in this matter in the past, and will he now make a special study of this problem with a view to taking advantage of the new situation which could soon exist?

Mr. Brown: For a long time I have been concerned—before I ever came to office—with the position of the Palestine refugees. I have visited them many times, and I have often made proposals, both to Israeli and Arab statesmen now in office, about the ways in which I thought this problem might either be completely dealt with, or certainly removed as a festering irritating sore. I agree with my hon. Friend that we have a good record about this, and that one of the root causes of the conflict which will have to be dealt with in a settlement must be the future of these wretched people.

Mr. Woodnutt: May I follow the point touched on by the Leader of the Liberal Party and raised by the hon. Member for Oldham, West (Mr. Hale) yesterday? While agreeing with the Government's policy of restraint and not wishing to take sides, there is no doubt that hostile acts have been taken against this country in the stopping of the oil flow and the breaking off of diplomatic relations. As there is a risk of a run on sterling, will the right hon. Gentleman assure us that if this takes place he will have no hesitation in freezing the balances of these countries in this country because of the danger to sterling?

Mr. Brown: I am sure that that was well meant, but it could hardly be more

damaging. May I make it plain that the£ today is running very strongly indeed. There is, therefore, no need for anybody to get into that kind of panic situation or to make suggestions of that kind. We do not need that kind of support.
On the question of acts against us which are hostile, such as breaking off diplomatic relations, and suspending oil shipments, I take a very strong view of them, and I have explained this very strongly both personally and in writing to the Governments and their representatives. On the other hand, I ask the House to recognise that in a situation as deeply charged as this has been in the last week it is possible to understand the pressures on some of these countries, and that probably the less we attack in public the more likely we are very soon to rehabilitate the situation.

Mr. Francis Noel-Baker: While expressing warm support for my right hon. Friend's general approach, may I ask one specific and one more general question? Among the major root causes of the conflict in the Middle East are not the war in Vietnam and bad relations between the Soviet Union and the United States very important factors?
My specific question is this. Is it not unrealistic to expect the victorious Israeli forces to withdraw to the 1949 armistice lines unless there are very substantial guarantees, and that there will have to be substantial frontier rectifications if the security of Israel and stability in the Middle East are to be preserved in the future in addition to firm treaties with Israel's Arab neighbours recognising her existence and guaranteeing her frontier?

Mr. Brown: On the first point, what my hon. Friend called the general one, as I said when I returned from Moscow I did not have the impression that any differences about Vietnam were being allowed to cloud the Russians' minds about the undesirability of having a conflagration in the Middle East in addition to one in South-East Asia. I see no reason to believe that Vietnam has had anything to do with this conflagration arising, though I am bound to say it may have had something to do with the passing of the cease-fire resolution in the United Nations.
On the point about Israel's forces and positions reached by Israel, I repeat that I take note of what my hon. Friend has said. All these things will have to be considered when it comes to trying to work out an equitable and lasting settlement.

Sir J. Eden: Although the position is still somewhat uncertain, would not the right hon. Gentleman agree that a more lasting settlement in future is likely to be achieved only if there are direct negotiations between the principal combatants? Therefore, as soon as he thinks the time is ripe, will the right hon. Gentleman initiate four-Power proposals to try to bring this about?

Mr. Brown: With respect to the hon. Gentleman, I think that we are running ahead of ourselves here. If the House would accept a piece of advice, I think that canvassing these ideas at this stage may well be counter-productive. I will take these things into account. I agree that the four Powers have a rôle to play, but whether we handle it that way, or whether we handle it at the United Nations, is a matter which we have to work out very carefully, and I would rather not be pressed on it.

Sir B. Janner: Is my right hon. Friend aware that the battle which is being fought is the battle of Israel, similar to the lone battle that was fought in the Battle of Britain? Is not my right hon. Friend aware that some assurance must be given, in whatever terms are arranged, that the diabolical kind of propaganda which went on before will not emanate against the little State of Israel?
Secondly, will my right hon. Friend look into the question of the facilities for broadcasting which we gave to the Arabs who were attacking us as well as Israel, and the very little help that was given to Israel in the form of broadcasting facilities?

Mr. Brown: I am sure that this country's capacity to help bring about a lasting and equitable settlement, and thereby help the cause which my hon. Friend has at heart, will not be enhanced by any statement by me at this moment which could suggest to the Arabs that I was endorsing claims made by those who speak for Israel.

Equally, may I remind my hon. Friend that one of the difficulties in this is that other people do not distinguish as easily as we do between Government statements and responsibility in this House, and statements made by others in this House. We want to get at a settlement. We have to get at it if my hon. Friend's ambitions are to be satisfied. We have to get at it if our own interests are to be satisfied. We have to get at it if the Arabs are to be satisfied. I urge on the House that restraint in what we have to say at this moment may be of the utmost possible value.

Sir B. Janner: On a point of order. My right hon. Friend did not answer the second part of my question.

Mr. Speaker: Order. It is for the Minister to answer questions in the way he wishes to answer. The hon. Gentleman knows that.

Mr. G. Campbell: Would the right hon. Gentleman say through what agencies on the ground this cease-fire, when accepted, is to be supervised and policed? Is this not a task which U.N.T.S.O. could carry out?

Mr. Brown: As I said when I made my statement on Monday, that is obviously a possibility. U.N.T.S.O. still exists, although it had a fairly rough time in Jerusalem. That is obviously a possibility, but I suggest that we remember the phrase, "First catch your hare." The first thing is to get the ceasefire, and then decide how to supervise and enforce it.

Mr. Michael Foot: Will my right hon. Friend accept that, whatever may be the inevitable differences of opinion which are bound to arise on this subject, many of us believe that his single-minded aim is to stop the bloodshed and get an honourable and lasting settlement? Is he aware that we wish him the very best of success in this endeavour?

Mr. Brown: I thank my hon. Friend very much indeed.

Sir J. Langford-Holt: Will the right hon. Gentleman be assured that, while agreeing with his hon. Friend the Member for Ebbw Vale (Mr. Michael Foot), the whole House will, I think, agree with him when he said that we cannot accept


a situation which returns to the conditions which gave birth to the struggle which is going on?

Several Hon. Members: Several Hon. Members rose—

Mr. Speaker: Order. Mr. Jay. Statement.

MOTOR CARS (HIRE-PURCHASE RESTRICTIONS)

The President of the Board of Trade (Mr. Douglas Jay): With permission, I should like to make a statement on hire-purchase restrictions on motor cars.
The Government have kept the state of the motor car industry under review during the past few months, and have decided that the time is now right to relax the control of hire-purchase and credit sale agreements for motor cars. This will not only help the industry, particularly its ability to export at a period when the seasonal decline in home sales usually begins, but, in accordance with the Government's economic policy, will apply a modest stimulus to the economy generally.
I have therefore made an Order which reduces the deposit required before entering into such agreements from 40 per cent. to 30 per cent., and increases the maximum period allowed for repayment from 24 months to 30 months. There will be a comparable amendment of the Control of Hiring Order, to reduce the rental payable before entering into a motor car hiring agreement from 42 weeks to 32 weeks. These changes will come into operation as from midnight tonight.
I appreciate that there has been a decline in demand in other industries affected by hire-purchase controls, but any relaxation going beyond that now proposed would not be justified at present. We have decided to concentrate what we can do on the motor industry because its vital export performance would otherwise be threatened by the usual seasonal fall in home sales.

Mr. Maudling: We welcome this relaxation, but is the right hon. Gentleman aware that we find something a little absurd in his repeated references to the threat to exports arising from the usual seasonal decline in home sales? As everyone knows, the unusual and

unseasonal decline arising from Government policy is doing the damage.
Have the Government made an estimate of the effect of this relaxation and, if so, would the right hon. Gentleman enlighten us about that estimate? As he talked about "a modest stimulus to the economy generally," was this modest stimulus taken into account by his right hon. Friend the Chancellor in arriving at his estimates of the likely expansion of demand and production this year? If so, what is the right hon. Gentleman's estimate of the extent?

Mr. Jay: The right hon. Gentleman knows only too well that there tends to be a seasonal decline in home sales in the second half of the year and that if that is allowed to proceed too far it could be damaging to exports. We have made a careful estimate of the result of these measures, in consultation with the motor industry and the main firms. We have no doubt that, as a result of this action, the total production of the industry in the latter part of this year will be higher than it otherwise would have been; and its capacity to export will, therefore, be very much larger.
To answer the right hon. Gentleman's question about the estimates made by my right hon. Friend, the Chancellor has taken this into account. It was never contemplated that the restrictions introduced in July of last year would last for ever. The only question was when they should be relaxed, and we think that this is the proper time.

Mr. Maudling: The right hon. Gentleman said that the Government had made a careful estimate in conjunction with the industry. Will he enlighten the House by giving that estimate?

Mr. Jay: I have already answered that question. We think that there would have been an injurious fall in production had this change not been made. We now think that home sales will be maintained at a level which will enable exports to be considerably higher than they would otherwise have been.

Mr. Luard: I warmly welcome my right hon. Friend's announcement. As there is a very serious situation in the motor industry today, and as there is, even now, a strong possibility that there


may be an acute crisis in the autumn and winter of this year, will my right hon. Friend give an assurance that, in addition to this relaxation, he will not close his mind to a possible relaxation of Purchase Tax on motor cars?

Mr. Jay: No, Sir. We do not think so. We have now made a very major relaxation in the hire-purchase restrictions, and in our opinion this is perfectly adequate to meet the situation.

Mr. Bessell: Why has the period of 30 months been chosen for repayment instead of the normal 36 months, which would seem easier to operate? Is the right hon. Gentleman aware that the Liberal Party welcomes his statement, which will provide an excellent impetus to the export trade?

Mr. Jay: The period of 30 months has been chosen because, in the light of the information we have about prospective home and export demand, 36 months would, in our opinion, have been going too far. The right figure at the moment, also in relation to the percentage of down payment, is 30 months.

Mr. Roy Hughes: I congratulate my right hon. Friend on having made this important statement, which will be warmly welcomed by many thousands of workers in the motor trade, who have been concerned recently about their future in this major industry.

Mr. Gresham Cooke: While this relaxation is, of course, to be welcomed, is the right hon. Gentleman aware that, generally speaking, it is very tardy and that the motor companies have not only made a loss in the first quarter, but that a fall in production has occurred which will undoubtedly affect exports? Is he aware that other industries, such as radio and television, are suffering likewise and that there may be unemployment in those industries in the autumn unless something is done?

Mr. Jay: The hon. Gentleman describes this action as "tardy". He will be aware that there has been a considerable improvement in the balance of payments over the last 12 months. If this recovery had not occurred it would not have been possible to have made even this relaxation.
To answer the hon. Gentleman's question about how other industries are affected, he will realise that they do not suffer so severe a cyclical problem as the motor industry and that, in any case—as he knows only too well—during the last 11 months the down payment for the motor industry has been higher than the down payment for those other industries.

Mr. Mendelson: I assure my right hon. Friend that his statement will be welcomed generally, not only in the motor car trade, but in the ancillary industries, such as steel. Has he seen the estimates of the National Institute for Social and Economic Research, to the effect that investment is still seriously lagging behind and that there will be a continuing underlying tendency towards higher unemployment unless the Government take further measures forthwith to encourage consumer demand?

Mr. Jay: Yes, Sir. I have studied those estimates. I think that one of the advantages of this action is that it will have a modestly stimulating effect on the economy as a whole, as well as directly on the motor industry.

Mr. Iain Macleod: Leaving the wider questions for discussion at some future time, am I right in assuming that the right hon. Gentleman's statement refers equally to new and to second-hand cars?

Mr. Jay: Yes, Sir.

Mr. Macdonald: Will my right hon. Friend bear in mind for the future that these changes either up or down in hire-purchase controls make it very difficult for the industry to plan ahead, particularly in capital investment? Further, would he seek, if it is at all possible, to avoid trying to control the economy by these kinds of changes in the future?

Mr. Jay: I am sure that my hon. Friend realises that there is a school of thought in the industry itself which thinks that the Government, in their planning, should take into account the seasonal pattern in the industry. That is one of the important factors we have to consider.

Mr. Biffen: While accepting that there may be some kind of case for a modest relaxation in hire-purchase controls, may I ask whether the right hon. Gentleman will take this occasion to assure us that


the Government are fully conscious of the dangers of premature reflation, and endorse the view on the subject expressed by the Governor of the Bank of England at the British Export Houses dinner on Monday?

Mr. Jay: Yes, Sir. We are very fully conscious of that, but I do not think that the hon. Gentleman would think that there are enough, if any, alterations in the balance of economic policy at any one time. We are aware of that, but think that we have achieved the right balance.

Sir M. Galpern: While the President of the Board of Trade has given, briefly, the general reasons for not extending the reduction in hire-purchase payments to other commodities, is he aware of the unusually high incidence of short-time working in the furniture industry? Can he hold out any comfort to that industry by way of announcement of an early reduction in hire-purchase deposits on furniture?

Mr. Jay: I could not add anything about the furniture industry at the present time. I would remind my hon. Friend that at the moment the down payment on furniture is only 20 per cent., whereas, even after this change, it will be as high as 30 per cent. in the motor car industry.

Sir A. V. Harvey: Will the President of the Board of Trade confirm that what he said applies to motor cycles and other light vehicles? Further, bearing in mind other industries, some of which have been having a very rough time indeed, if the situation does not improve in the next month or two, will he make a statement to the House before the Summer Recess?

Mr. Jay: I am sure that the hon. Gentleman realises that motor cycles and three-wheelers were covered by my right hon. Friend's Budget statement, by which the arrangements then in force were changed to a 25 per cent. down payment and a repayment period of 27 months. Therefore, the down payment on motor cycles is already lower.

Mr. Rowland: My right hon. Friend will be aware that today's announcement will be welcomed in the Midlands, but can he say how far today's changes are in accordance with representations made to him by the motor industry? And can he give some estimate of the number of jobs which will be either saved or created by these changes?

Mr. Jay: I think that it is for the motor industries to speak for themselves on their own recommendations, but we have gone as far to meet their request as we thought to be in the national interest at the present time. I should not like to give any exact statistical estimate of the effects on employment, but the changes will clearly have a favourable effect on both the vehicle and the components industries.

Mr. Alison: The President of the Board of Trade spoke of this being a contra-cyclical move to even out seasonal fluctuations; but it looks to us like a once-for-all measure. Does he intend to make further moves next year when the cycle changes? If not, will he consult his right hon. Friend the Chancellor of the Exchequer about the possibility of a differential rate of Purchase Tax for cars, to take account of the cycle?

Mr. Jay: As to the future, we shall take the right decision at the right time.

BILL PRESENTED

ADEN, PERIM AND KURIA MURIA ISLANDS

Bill to make provision for, and in connection with, the relinquishment of Her Majesty's sovereignty over Aden, Perim and the Kuria Muria Islands, and to amend the definition of 'Governor' in Section 32(1) of the British Nationality Act 1948, presented by Mr. George Brown, supported by Mr. Arthur Bottom-ley, Mr. George Thomson, Mr. Niall MacDermot, and Mr. David Ennals; read the First time; to be read a Second time Tomorrow and to be printed. [Bill 267.]

Orders of the Day — FINANCE (No. 2) BILL

Further considered in Committee [Progress, 6th June].

[Mr. SYDNEY IRVING in the Chair.]

Clause 14 ordered to stand part of the Bill.

Clause 15.—(INCREASE OF SURTAX RATES FOR 1965–66.)

Question proposed, That the Clause stand part of the Bill.

4.25 p.m.

Mr. Peter Hordem: From our discussions on rates of Surtax, we come now to discuss the surcharge on Surtax. I think that the Chief Secretary will wish to forget his speech on the rates of Surtax. I am sure that he will not wish it to be read either by those who take our expressed intention of joining the Economic Community seriously, or by any of those young executives who are contemplating their future and wondering whether or not to go to another country. What has been made perfectly clear by that speech is that the days of the brave new world, in which we could look forward to an army of white-coated scientists forging the new technology of socialism, have gone, and that we are right back to the days of the cloth cap and the bottle of H.P. sauce.
This surcharge on Surtax is the most discreditable part of what is a thoroughly turgid Finance Bill. In the two previous Finance Bills in which the Government have been engaged, we have dealt with a maze of complicated legislation. The Chief Secretary has previously referred to the Corporation Tax as being simplicity itself. For once, with regard to this Clause, we can agree with him. This Clause is simplicity itself, for it represents a vicious and retrospective swipe at those who already suffer the highest level of tax of any of the major countries.
It is a capital levy of the most primitive and penal kind. It is as though the Government, having tired of the sophisticated tortures of Corporation Tax, Capital Gains Tax and Selective Employment Tax had decided to revert to the good

old-fashioned bludgeon—the kind of weapon the King of Tonga would have used 200 years ago to soak the richest people round him. It is the resort of every bankrupt Government throughout the world and throughout history.
We appreciate that the Chancellor of the Exchequer will claim that this is a special once-for-all measure, part of the desperate measures the Government took to save the £ last July when, it will be recalled, we were supposed to have been blown off course. The trouble is that we are always being blown off course. We are getting a little tired of the Chancellor's nautical expressions. Either he has a "shot in the locker" or he is telling us to hold "steady on course" or he is "flying the flag". He seems to think that he is some kind of Sir Francis Chichester, but do do not see him in that role. We rather regard him as the Flying Dutchman. We do not think that he will ever bring the ship home.
Whether we refer to the crisis of December, 1964, or that of June, 1965, or that of July, 1966, it has always been the high salary earner who has caught it in the neck. With increased Income Tax, the vicious Capital Gains Tax, and now the surcharge on Surtax, it is time to draw the consequences of these actions before the Chancellor of the Exchequer. The claim is that this is a special once-for-all action, but it seems to us, and it certainly seems to the economic commentators, that the Chancellor of the Exchequer is what is known in financial circles as stuck in a gluepot. He has a record borrowing requirement, he knows that unemployment is still rising, and that production is roughly where it was at the end of 1964. We have a picture of a massive increase in Government expenditure which has not been matched by any similar increase in productivity. It looks, therefore, as if by the time we get to the next Budget in April the Chancellor will be met either with a higher borrowing requirement with all its inflationary consequences or with the need for higher taxation. It will be all too likely that the Government will consider that some further action will be necessary and that this surcharge will prove, after all, to be not a once-for-all measure.
4.30 p.m.
The July measures in themselves did nothing whatever to improve the


efficiency of the economy. We recall that they were designed to take £500 million out of the economy, of which this surcharge was due to withdraw £25 million. In retrospect, it says little for the Chancellor's claim before the election that he saw no need for a considerable increase in taxation. Even if we accept the need for £500 million, does it make sense economically to take £25 million out by means of this surcharge? Income from the year ending 5th April, 1965, formed the basis of assessment for the year 1965–66 and it is this surcharge which is retrospective to the tax year ending 5th April, 1965. As both the Income Tax and Surtax had already been disposed of, this sum could conceivably only have come from savings. Yet the Prime Minister claimed that demand would be reduced by this sum. One's patience with the Prime Minister's claims as an economist are growing pretty thin.
The surcharge had nothing whatever to do with the economic situation. It was purely a sop designed to placate those millions of people who had trusted the Government at the last election and were now being presented with the bill. This charge is nothing less than a levy upon
income which the taxpayer was entitled to regard as fully taxed and for which no doubt he had made all his arrangements. What is the position of someone who had made his arrangements for paying his Income Tax and Surtax for the year 1965–66 and then went abroad and became a non-resident before the July measures? As a non-resident, is he liable for this surcharge? If he is, how is the money to be got? I hope the Chief Secretary will answer that point when he replies to the debate.
What is the position of someone who has ceased to trade since 1965–66 and is now retired? He is liable to this surcharge. What kind of justice is there for someone who retired on a very small pension and has to cough up this surcharge for which he will be liable? Then again, the averaging provisions of Section 238 of last year's Finance Act do not apply to dividend income received in 1965–66, so the liability for Surtax falls on investment income and would in any case be higher than in a normal year.
Of course there is a precedent for a capital levy of this kind. There always

is, if one looks back far enough to a Socialist Government. Sir Stafford Cripps introduced what he called the Special Contribution in 1948 in that Socialist Government, but it had very different terms from those we are discussing. He said in his Budget speech:
I now propose to make a special once-for-all levy, …
that is rich: once for all—
I recognise fully that regular taxation of this character would have a marked dis-incen-tive effect on saving, which is certainly not what we want."—[OFFICIAL REPORT, 6th April, 1948; Vol. 449, cc. 71–72.]
Even that Government allowed a right of appeal, a right which was fully exercised at the time, but this surcharge allows no such thing. This levy is unique in modern times.
It is difficult to know which is the worst feature of it, whether the fact that it is retrospective, whether that there is no form of appeal whatever, or whether that it is entirely arbitrary in its treatment. I prefer to leave the retrospective element to my hon. Friends who, no doubt, will refer to it in their speeches. It is certainly no surprise that this whole Bill is a study in retrospection as is previous legislation and Finance Bills brought in by this Government. I wish to refer to the arbitrary element because it contributes a threat to the conduct of business in this country, and more especially the Government's ability to handle our economic affairs.
I think both sides of the Committee are agreed about the need for better management. Where we tend to disagree is about the need for incentives. The Chief Secretary may pay lip-service to the idea of incentives, but he certainly believes in taxing them, as was shown by his speech last night. What hon. Members opposite fail to realise is not merely that distances have now become so short as between one country and another— in effect we are only a few hours away, as my hon. Friend the Member for Ormskirk (Sir D. Glover) said last week—but that there is far more communication between firms in one country and another than there used to be. Therefore, the lively managers whom we wish to encourage are very much aware of conditions which exist in other countries.

Mr. Joel Barnett: The hon. Member obviously


prepared his speech without reading all the facts and figures which were given by my right hon. Friend last night or in previous debates. I do not expect him to read my speech on the Second Reading of the Finance Bill, but he should look up some of these facts. He should look at some of the objective surveys on the whole question of incentives and the opportunities tax-wise available to our bright young executives. If he looks, for example, to Australia or Europe he will find that total tax levels are in many cases higher there than here.

Mr. Hordern: I do not know which speech of the hon. Member I should look at, but I shall certainly refresh my memory. I was referring to the difference in experience in this country and in the United States. There is no question that the figures for Surtax at a level of earnings anything like the £10,000 level are greatly in favour of the United States than of this country.
These people observe their counterparts. They observe not only that they are getting higher rewards before tax, which is a common phenomenon in both the United States and European countries, but that when Surtax comes into operation the difference becomes even more marked. Now, by means of this surcharge, they realise they have something else to deal with. This is a form of what can only be described as a bovine prejudice against them shown by this Government. This has been shown from time to time. First they had the increase in Income Tax to contend with, then the new form of Capital Gains Tax, then restrictions on expense accounts, then the taxing of stock options, and now this surcharge.
They ask why the Government should not do it again. They know that it has nothing whatever to do with the economic situation. It did nothing to help that situation. The Chief Secretary will no doubt say that it was done in an emergency, but what confidence have these people that there will not be other emergencies? They know for certain that at the next emergency they will be picked out for special attention and special treatment.
A great deal was said in the debate on the previous Clause about the brain

drain. I have recently returned from the United States where I was looking at research centres throughout the whole of that Continent. I came into contact with a large number of business people. I could not but be aware of the number of Englishmen who have migrated to that country.
There was something in what the hon. Member for Heywood and Royton (Mr. Barnett) said. I do not believe the reasons for the brain drain is necessarily comparability of existing salaries. What is in their minds are future prospects. Prospects in the next five or 10 years matter to young emigrants going to the United States and the prospects there are greater for many reasons than they are in this country. Although many people take advantage of what they consider to be better conditions in the United States, the great majority stay, either because they like to be here or for family reasons. They do so on one assumption, namely, that the high taxation and other material disadvantages are known and certain, and that they know what the bill is that they have to pay. By this surcharge this basic assumption is completely destroyed, as also is their confidence in the Government's word.
Therefore, the cost of this proposal is nothing like the £25 million that it is supposed to be. It is to be measured in the disillusionment and antagonism of all the efficient and ambitious executives in business and industry. And it will be the country as well as the Government that will have to pay the price.

Mr. John Lee: Last night one hon. Member opposite deplored the absence of the Left from these debates. I hope for a few minutes to remedy that deficiency, if I may be so bold as to claim to be a representative of the Left.
I want to make one or two criticisms of the Clause. My criticisms are of a rather different kind from those made by the hon. Member for Horsham (Mr. Hordern). My complaints, which I hope to couch in reasonable terms, is that this 10 per cent. increase, once and for all, is not enough and will not last long enough. The hon. Gentleman referred to Sir Stafford Cripps's capital levy of 1948 and to the fact that that was to be once and for all. Ever since then I have been deploring the fact that Sir Stafford Cripps used such a phrase, partly


because it was an absurdity constitutionally and partly—this is the more important point—because it has been an embarrassment to Labour Chancellors of the Exchequer ever since who would like to have repeated the exercise but who, perhaps, have felt inhibited from doing so.
My purpose is to chide my right hon. Friend the Chancellor for giving a promise in this year's Budget that this surcharge would not be repeated. I do this for several reasons. The first and most important reason for protesting about this is simply that, as this surcharge was introduced as one of many measures which were called for in an emergency last July, it should not have been removed, at least not until the other measures went as well. I say that the discontinuance of the surcharge is wrong simply on grounds of equity. Most of the other measures which were introduced last July were inevitably detrimental to lower-paid workers, in that they were designed to take a lot of money out of their pockets. Those measures have also had the effect of increasing the amount of unemployment among lower-paid workers. Were it not for the fact that we have had an exceptionally mild winter, there is no doubt but that the impact of the measures of last July would have been much more severe than it has been.

Mr. J. Bruce-Gardyne: Would not the hon. Gentleman agree that all past experience shows that the effects of the measures of last July on unemployment will be shown much more violently next spring than they were last spring?

Mr. Lee: I readily concede that it is possible that what happened in the cycle of events in 1961–63 could well be repeated. The worst effects of the measures of July, 1961, were not experienced until the winter of 1962–63. In other words, the worst may be to come. This only reinforces my case. If it was right to take this measure as a sop to placate the rest of the community who were hit much more severely by the measures of last July—the word "sop" is how the hon. Gentleman describes it; I would prefer to say, a tribute of impudence to dignity, that it was an attempt at equity and justice towards them—as long as

there is a danger of people suffering from hardship on a large scale from the measures of last July, this surcharge should not be withdrawn.
4.45 p.m.
In a recent speech my right hon. Friend the Chancellor of the Exchequer said that the credit squeeze was being lifted and that we were in for rather better times. Unfortunately, this prophecy seems to have been falsified by the publication of the new Prices and Incomes Bill. I do not know what attitude hon. Members opposite will take to the Prices and Incomes Bill when it comes before the House for its Second Reading. I give advance notice that I have not the slightest intention of voting for it at any stage. I say this because I believe that it is an irrelevant and unfair measure, given the great maldistribution of wealth that exists.
It is, therefore, all the more deplorable that, at a time when we are extending statutory controls over wages, the comparable measures taken at the expense of Surtax payers should not be extended to cover the same period. Although the date of collection for the Surtax surcharge is September of this year, it relates back to the previous financial year. The period covered is a mere 12 months. The period covered by all the successive prices and incomes legislation is a great deal longer than that.
The second reason why I think that this surcharge should have been repeated is that, however quickly the crisis in the Middle East is settled, it is bound to have a damaging effect on our economy. I do not believe that we are likely to emerge from the impasse in the Middle East—I do not believe that the oil supplies, which are to be interrupted—

The Deputy Chairman: Order. The hon. Gentleman is drifting away from the Question, "That the Clause stand part of the Bill", which is what we are discussing.

Mr. Lee: I will try to come back to that, Mr. Irving. All that I wished to say was that the economic difficulties which we are likely to be in as a result of the crisis in the Middle East may well make another bout of emergency meassures necessary. I hope that they will not


be of the same kind as those of last July. If they are, it may well mean the re-introduction of the surcharge. If there is any truth in the contention by hon. Members opposite that this sort of thing is a disincentive to enterprising businessmen, it will have a greater disincentive and demoralising effect if, the surcharge having been taken away, it is necessary to reintroduce it.
My third reason for deploring the fact that this measure is for only a one-year period is contained in the arguments of the hon. Lady the Member for Finchley (Mrs. Thatcher), who said last night that the crucial point for disincentives in income was about £1,500. That is below the level we are concerned with in Surtax. The hon. Lady is probably right. If we could reduce taxation in the lower levels, from £1,500 downwards, we should do far more to keep people of considerable professional ability in this country. It is not Surtax which is the real disincentive. In the main, people make their choice as to where they will work when they take on a job for the first time. If they decide to stay in this country when they first take a job, they are likely to remain. Of course, if they go abroad, they are lost to us often for good.
One of the reasons why we are losing people in the medical profession, for example, is that starting salaries are too low. It has nothing to do with the Surtax. Surtax does not apply and cannot apply to doctors starting out, and the same applies to the entrance grades of the scientific Civil Service and many comparable groups. All the arguments which we heard last night, the harrowing tales about hardship to the Surtax payer, have no bearing on the situation whatever.
My final reason for saying that this measure does not go far enough is this. Whatever may be said about comparable rates of taxation in this country, on the Continent of Europe or in the United States—there has been a welter of contradictory information on the subject— it remains true that, however high the nominal rates may have seemed, the impact on the redistribution of wealth in this country has been remarkably small. One has only to look at the distribution of capital wealth as it was before the First World War and as it is now. In spite of two world wars, in spite of very high nominal rates of death duties and

quite high Income Tax and Surtax rates over much of that period, the great bulk of privately owned wealth is still concentrated in a few hands.
More than that, the distribution of incomes shows that there has been a remarkable slowing down of redistribution of wealth in Britain. It is broadly true that, during the war and the period up to 1957, taxation had the effect of causing a redistribution of wealth in favour of the poorest sections of the community. This has not been so apparent since 1957. The people at the top, who undoubtedly suffered a great deal from the tax levels which applied under the post-war Labour Government and the first years of the Conservative Government, have seen a slowing down, they have been respited, one might say, from further redistribution. A parallel process has been seen at the bottom end of the scale as well. The bottom 30 per cent. of income recipients have had, substantially, no improvement in the period since 1957.
This means that my right hon. Friends have a good deal of backlog to make up. They have to make up for the fact that tax changes in the last few years of the Conservative Government were, on the whole, retrograde. One of the ways in which they can make up for that would be by being tough with the Surtax payers. I am very glad that this measure was introduced last July. It was not nearly enough by way of a sop to those of us who, in any case, felt that some of the measures of last July were, on any assessment, grossly unfair, but at least it was something.
Last night, my right hon. Friend the Chief Secretary made a good speech in dealing with the cant and humbug we had been having during the Institute of Directors benefit match played on the benches opposite in our discussions on Clause 14. I should have been a little more severe, but I think that his speech last night showed that, perhaps, his heart is in the right place. I only hope that, by the time the next Budget comes, we shall have a really good cracking capital levy which will make high Surtax levels unnecessary. In the meantime, perhaps my right hon. Friends will reconsider their decision that this shall be only 10 per cent. for one year.

Mr. Bruce-Gardyne: First, I apologise to my hon. Friend the Member for


Horsham (Mr. Hordern) for not being here to hear the opening passages of his speech. I hope that anything I say will not cover the same ground.
I do not know what effect the hon. Member for Reading (Mr. John Lee) had on his right hon. Friend the Chief Secretary, but he alarmed me. I was not worried so much by the nonsense which he talked at the end—I am not afraid that the Chief Secretary or his right hon. Friends will follow that sort of advice when framing their next Budget—but what frightened me was the hon. Gentleman's reminder that the ominous month of July is fast approaching. He seemed to forecast that we were in for the usual annual July package. I hope that he is wrong, but it is only fair to remind the Committee that this is a tradition which the present Government have established.
I interrupted the hon. Gentleman to point out that, on past performance, the likelihood was that the peak of unemployment as a result of the measures of last July would be reached next spring rather than this spring. The hon. Gentleman drew the conclusion that the proposal we are now discussing did not go far enough and should be extended so that everyone shared in the misery created by his Front Bench when it reached its height next spring. The conclusion I draw is quite different. In my view, the last thing we are likely to want as the peak of unemployment approaches is a further effort to depress internal demand. In other words, this proposal, apart from anything else, is a piece of utter economic nonsense.

Mr. John Lee: I take it from his last remark that the hon. Gentleman disagrees with his hon. Friend the Member for Horsham (Mr. Hordern) when he says that this levy comes out of savings and not out of income and, therefore, is not a depressant on demand.

Mr. Bruce-Gardyne: I am sure, that to some extent, it comes out of savings, but I shall deal with the impact of it in detail a little later. In some respects, it will definitely have a depressant effect on demand, and I shall cite examples to show that.

Mr. Barnett: When dealing with that point, perhaps the hon. Gentleman will deal also with the point his hon. Friend made when he said that this was really a capital levy.

Mr. Bruec-Gardyne: If the hon. Gentleman will allow me to make my speech, I shall cover that ground as I proceed.
It is worth looking back to the origin of this proposal in the famous July putsch last year, when the Prime Minister told us that all his hopes had collapsed. He explained the purposes behind the package he was proposing, and, among other things, he said:
Action is needed equally to deal with the problem of internal demand, public and private, and to redeploy resources, both manpower and investment, according to national priorities, and check inflation".—[OFFICIAL REPORT, 20th July, 1966; Vol. 732, c. 628.]
Significantly, the right hon Gentleman did not explain precisely where the 10 per cent. increase in Surtax fitted into this pattern. He would have been hard put to do so, but I suppose that one can make an assumption about what the Government had in mind. I do not think that this in the least contradicts the argument advanced by my hon. Friend the Member for Horsham. The package was put together in great haste. It certainly did not make much sense. The Government assumed—one can only take this from reading the Prime Minister's words—that the 10 per cent, increase in Surtax in the autumn of 1967 would have an effect on internal demand in the autumn of 1966, when they were wishing to operate with depressant effect on demand. But can that have been right? I should have thought that it was obvious to the meanest intelligence that this was absolute nonsense. It was presumably the need to depress and reduce the level of internal demand that was the excuse the Government gave for the proposal.
5.0 p.m.
My hon. Friend the Member for Horsham said a great deal, with which I totally agree, about the effect of the proposal on the sort of people who are figuring in the brain drain, those we can least afford to lose. That is one of the most important objections to the proposals. I want to draw attention to a case that has come to my attention which indicates how this sort of proposal impinges on another sector of the community, though I do not suggest that it is a sector which may be contemplating emigration, or that it will contribute


directly to our economic or industrial growth.
I am thinking of the case of an elderly lady constituent of mine, a widow of 70. She enjoys an earned income of about £400 a year, from her State pension and an officer's widow's pension, and also has an unearned income of about £3,000 a year from her own and her late husband's savings. In 1966, this unearned income was inflated by about £150 as a result of the bunching of dividends before the 1966 Finance Act. This year, that income will be about £250 lower. It will not be merely £250 less than last year, but £250 less than she has been accustomed to receive from her savings in previous years, because of the arbitrary effect of bunching, the effect of the squeeze and determined Government discrimination against distributions, and the effect this has had on the dividends from her savings.
Hon. Members opposite will, of course, argue that a lady with an unearned income of £3,000 a year probably falls in the parasite class. [Interruption.] I assure the hon. Member for Heywood and Roy-ton (Mr. Barnett) that I would not include him in the group of those who react in that way.

Mr. Barnett: I simply said that neither is she on the poverty line.

Mr. Bruce-Gardyne: I would not suggest for one moment that she is on the poverty line. That is not my argument. My argument is that while a stagnation in one's earnings involves hardship, a loss of earning power inevitably involves greater hardship, and when one is living on a fixed income, largely from one'? savings, a sharp drop in income in any one year may face one with real difficulty in trying to adjust one's expenditure to it.
This lady has a controlled tenant in her house, who pays the princely rent of £10 a year. While she was away the tenant, through carelessness, allowed severe damage to occur to the house, in which the lady also lives, and she now faces substantial repair bills. Her expenditures have thus risen sharply in a year in which her income has already fallen. On top of this, in September she must meet the surcharge under the clause, which I believe—the Chief Secretary will

correct me if I am wrong—will amount to about £12 10s. for her.
I do not suggest that that will have an overwhelming impact for a lady in this position and that it will completely submerge her. But it is another impost on her at a time when her income has already been sharply reduced, and when the expenditures she faces have already sharply risen. She claims that one effect—she may be exaggerating—is that she will be unable to undertake a visit which she has been projecting for a long time to her grandson in Ireland, who she has never seen. Clearly, the sum of £12 10s. was not the overriding consideration, but she claims that it was one consideration.
What I find inexcusable about the Clause is that this sort of sacrifice is imposed. The Chief Secretary sniggers. Of course, £12 10s. to somebody in receipt of his salary as Chief Secretary is an insignificant matter, but if he was living on a fixed income which had declined while his expenditures had risen sharply he might look at it in a rather different light.

The Chief Secretary to the Treasury (Mr. John Diamond): I wanted to intervene merely to say that I was not sniggering. I shall deal with the arguments later.

Mr. Bruce-Gardyne: I am glad to hear that the Chief Secretary was not sniggering. That was certainly the impression I got.
One of the most objectionable aspects of the Clause is that it is complete nonsense to think that withdrawing the sum of £12 10s. from this lady in the autumn of 1967 has anything to do with curing the economic problems of 1966, when the impost was imposed. I do not suggest that the Chief Secretary or even the Chancellor should be blamed for the nasty, vicious, little side-swipe contained in the Clause. It was clearly the product of the imagination of the Prime Minister. It has all the hallmarks of his personality upon it. But I hope that we do not dismiss too lightly the sort of impact which this and other measures can have on elderly retired people who are dependent on the income from savings which they have accumulated over the years, and who now find that that income has substantially dropped as a result of Government measures.
One last point about the proposal is worth considering, apart from the arguments so ably deployed by my hon. Friend the Member for Horsham. I wonder whether there may be another side effect of the proposal which is calculated to damage the efficiency of industry. Precisely because there are so many cases like that I mentioned, and because the level at which Surtax begins on unearned income is so much lower than the Surtax level on earned income, a proposal like this actively discourages—and was perhaps intended to discourage—distributions by companies and was intended further to divorce shareholders from the companies they own.
No doubt, in so far as this proposal was not just thrown in as a side swipe in the rather curious package with which we were presented last July, and in so far as it discriminates against distributed profits and helps to divorce the shareholder from the company he owns, it follows the pattern of a good deal of Government legislation.
The shareholders in a company are the one element in it exclusively concerned with its profitability and hence are most directly concerned with its efficiency. In so far as these proposals further divorce the shareholder from the company he owns, and further discriminates against distributed profits, it may add a further marginal effect to the rest that the Government have done to discourage economic efficiency in industry and the channelling of funds to industries and companies where they can be most efficiently and profitably used.
If we have another series of July measures this year—I hope and believe that we shall not, but I am sure that if we do not we shall have them next year under this Government—one of the reasons for them will be precisely that the Government have been introducing legislation of the type represented by the Clause.

Mr. Robert Sheldon: The hon. Member for South Angus (Mr. Bruce-Gardyne) referred—and undoubtedly we shall still hear from time to time references—to the brain drain and the increase to be expected in it because of an increased rate of taxation. I thought that this issue had been settled

once and for all by my right hon. Friend the Chief Secretary of the Treasury last night. He dealt with it so adequately then that anyone who was not convinced was either not present, cannot or does not read or has his ears stuffed. In view of the rebuttal he delivered last night, arguments such as those put by the hon. Gentleman and his colleagues today carry little weight with us.
The surcharge on Surtax came about as a result of the measures of 20th July. The hon. Member for Horsham (Mr. Hordern) said that it was always the high earner who caught it in the neck. That is a surprising statement, even from him. My hon. Friend the Member for Reading (Mr. John Lee) pointed out that the effect of the wage freeze upon the lower-paid workers in particular but certainly on all workers was most severe. They did not have the opportunities for avoiding some of the results of the July measures as certain, though not all, Surtax payers had.
When we come to examine the impact of the surcharge, we see surprising signs of how it has worked. I shall quote the standard cases given in the Annual Report of the Commissioners of Inland Revenue. First, there is the married man with three children, two under 11 and the third between 11 and 16, and with an income of £2,500. The increase due to the surcharge in his case amounts to £5, or 0·2 per cent. If the family income is £5,000, the increase is 1 per cent.; if the income is £10,000, the increase is just over 2 per cent.; if the income is £15,000, the increase is a little under 3 per cent.
When we think of the increases that were forgone by the industrial workers and the great difficulty that they have had, we see that, in fact, the burden has been placed on them and not on the Surtax payers. It may well be that my right hon. Friend the Chancellor of the Exchequer could have been more adventurous and increased the surcharge. That he did not do so is a sign of restraint which should be applauded by hon. Members opposite and not condemned.

5.15 p.m.

Mr. John M. Temple: I apologise for not having been here for the first part of the debate, but I enjoyed the whole of the debate on Surtax


yesterday and spoke of the disincentive of high rates of marginal taxation in the debate on the Second Reading.
The provisions in the July measures saw a significant happening. Up to then, it was thought that the Prime Minister was a planner. He was still held in a certain amount of awe in certain sectors, but at that moment he made a distinct and significant change from a planner into being a pragmatist. It was a significant change of tactics on his part. Certainly, no one could say that a retrospective increase of 10 per cent. in Surtax was a matter of planning. Of course it was not. It was not a matter of monetary pressure. It was nothing of that nature. It was purely a political swipe at a very small sector of the community to whom succeeding Chancellors ought to be incredibly grateful because they are contributors to the Revenue on a large scale.
I say that at that stage the Prime Minister became a pragmatist because he had always said that in economic planning what he wanted to bring about was the maximum amount of investment in the private sector. But it is just these Surtax payers who invest heavily in the private sector. If the Prime Minister really wanted to do serious damage to investment in the private sector, none could be worse than an increase of 10 per cent. on Surtax in this one year. It obviously means to Surtax payers that it must be expected that, under a Labour Government, increases of taxation of this nature may well take place just because there is a crisis.
The hon. Member for Reading (Mr. John Lee) called for a capital gains tax of a severe nature. This is another swipe at the capitalist. The Socialists are very unwise indeed to levy these severe taxes on capitalists within our society because it is upon capitalists in our society that consistent growth of the economy depends.

Mr. John Lee: I said a capital levy, not a capital gain. It is a most important difference.

Mr. Temple: I appreciate that, but my remarks apply just as much to the case of a capital levy—indeed, more so. The suggestion would be absolutely disastrous. Throughout the world today, whether in

capitalist or in Socialist countries, there is great lack of capital. Many people have referred to the capital hunger of the world. But it is only the persons of considerable wealth who really can invest in a substantial way and bring about a vast increase in the output of any mixed economy such as the Socialist Party claims to sustain in Britain.
By this Clause, and in failure last night to accept our proposals for diminution of the general Surtax level, the Socialists have unfortunately once again clearly demonstrated their antipathy towards capital, and since capital is something that I believe will bring about growth in our country I do not believe that Socialism and growth can ever be synonymous.

Mr. Diamond: I start with an apology to the Committee. I am sure that hon. Members will agree that, on most occasions, whatever my other failings, I try to provide information asked for by hon. Members. On this occasion, due to my lack of foresight, I am totally unprovided with any details of any of the taxes in Tonga 200 years ago. I am sorry. The hon. Gentleman is right and I apologise, but that is the only part of his speech which I am unable to answer. The rest I will be glad to answer in so far as it was not answered by my hon. Friends, to each and every one of whom I am grateful for his constructive, interesting and relevant speech. In so far as it was not answered I should say that it was destroyed by his hon. Friend the Member for South Angus (Mr. Bruce-Gardyne) who, not having heard what the hon. Gentleman said, gave an entirely different point of view and neutralised most of what the hon. Gentleman said.
I will be only too glad to reply to anything that is left. We are covering ground which has previously been covered, so I will only refer to the arguments rather than go into them at length.
The general reason for this was made clear by the Prime Minister. He made it clear that it was for one year, and I suggest that is the end of the argument. It was expressed to be a one year addition, and therefore for one year only it must be. My right hon. Friend put it in the context of the general contribution that most Surtax payers would wish to


make in the general circumstances prevailing at the time. The comments which have been made by the hon. Member for South Angus can in no sense be representative of the average Surtax payer, who would not suffer to the same extent as the less well-to-do section of the community, the average wage earner. I feel sure that the average Surtax payers would not object to this modest contribution in order to demonstrate that they share in the responsibilities in a reasonable and fair way.

Mr. Bruce-Gardyne: Surely the point is that the Prime Minister was referring to the circumstances of the time. The circumstances of the late summer of 1966 were totally different from the circumstances of the time when this impost will have to be paid.

Mr. Diamond: The circumstances were relevant at the time. There are all sorts of circumstances—economic, political and psychological—and every measure announced by the Prime Minister was relevant in all these contexts. The main claim is that this is an excessive burden which falls on people retrospectively when they have disposed of their income and have no knowledge of what the impost is likely to be.
I can quantify the degree of excessive-ness by giving a simple example of a married man with no children, earning £6,000 a year or £120 a week—not wholly impoverished. The rate of additional Surtax he is called upon to bear by this impost, which has been criticised so strongly by the hon. Member for South Angus, is a total of £8 7s. ld. over the whole year. I do not regard that as a very high impost on gross earnings of £6,000 a year. I am not talking about net figures; I am talking about the additional impost of 10 per cent. Some of us realise what we are talking about if others do not.

Mr. John Hall: Do I understand that this is roughly £100 for the year out of a net income which is considerably less than the £6,000 which the right hon. Gentleman is talking about?

Mr. Diamond: I have tried to make it clear. The additional Surtax of 10 per cent. payable under the Clause amounts over the whole year to £8 7s. 1d.

Mr. John Hall: Then I am right in my calculation. To get an assessment we must know what the net income is.

Mr. Diamond: The net income is decreased by £8 7s. Id. over the whole year out of a gross income of £6,000. The total additional Surtax payable over the whole years is £8 7s. 1d., and people earning £6,000 a year would not be likely to feel that this is wholly intolerable.
The more fundamental principles of the weight of taxation, on which this is an added burden, I will deal with shortly. It is only on earnings over £15,000 a year, or £300 a week, that the effective rate of taxation on an average individual, married with two children, exceeds 10s. in the £. It is only on earnings above £15,000 a year that our effective rates of taxation broadly become more burdensome than in other countries. The Chancellor yesterday gave figures to show that in terms of direct taxation the share of G.N.P.—the figures are in HANSARD but I quote them from memory—is about 18 per cent. in this country whereas the average for the Six is 22 per cent. The burden of taxation is higher in each country of the Six. Ours was the lowest—18 per cent. compared with 22 per cent. The complaint that this is wholly opposed to going into Europe does not rest on any foundation.
We need not discuss the brain drain. I am delighted to see the hon. Member for Ormskirk (Sir D. Glover), who made an effective speech last night demonstrating that it was because of the high level of taxation that there had been this enormous brain drain to Australia. I think he said that ¾ million people had gone to Australia recently. Unfortunately, he had not informed himself of the figures. I quoted them last night to show that at each level of taxation the rate in Australia was higher, considerably higher in many cases. I gave the figures from £900 a year up to about £15,000 a year. We need not go into that again.
The final argument is that this is retrospective. Let me refresh hon. Members' memories as to what happens with Surtax. It is not until the Finance Bill of the year following the basic year of assessment that the rate is announced. The relevant rate which has now been increased by 10 per cent. was announced last year in the course of the Finance Bill, but before this rate was lawful and,


therefore, before it was known as the final lawful rate and long before anybody had to consider paying it, it was increased by 10 per cent. Everybody knew it was increased by 10 per cent., because the Prime Minister said so. It is absolutely nonsense to say that there is any element of retrospection in this. It follows the normal procedure. All that one can say is that the figure that was first announced was increased by 10 per cent. before it became effective. The answer to the hon. Gentleman's question about a nonresident or, indeed, anybody else, is that everybody knew before the Finance Bill became law what the rate of Surtax would be. It is because it would be inconvenient to go over the whole procedure again at that point of time that it has been left to this occasion.
I hope it will be realised that the Clause is wholly justified. The tax is not an excessive impost; the rate of taxation is not high. We are one of the less heavily taxed countries. There is no bar in this to going into Europe. The European taxes with which we are concerned are indirect taxes. I hope that the Committee will be good enough to give us this Clause.

5.30 p.m.

Mr. Iain Macleod: I feel that we ought to divide on this issue shortly, because we have a long way to go. The Chief Secretary might not have gathered from our reception of his speech last night that we were extremely grateful to him for it. A number of quotations from it will appear in our Campaign Guide at the next General Election. In spite of my preoccupations this morning, I have taken steps to see that that is so.
Some of the right hon. Gentleman's hon. Friends seem hypnotised by the Chief Secretary's ability to select countries to suit his argument. We know the Chief Secretary too well. His argument on Second Reading was destroyed yesterday in the selection of countries for comparison and in the argument about the brain drain he has looked all over the world until he has come up with one country, Australia.
Goodness knows how many different reasons there are why people go to Australia. One important reason is that

there is not a Socialist Government there. I do not have the figures before me, and I speak entirely from memory, but I am fairly certain that even over Australia the Chief Secretary has done it again and has stopped quoting the Australian figures exactly at the moment when it suited him. Am I not right in thinking that the top rate of taxation in Australia is about 70 per cent? The right hon. Gentleman's one country in the world runs out on him exactly at the moment, of course, when he brings that part of his argument to an end.
We all use comparisons selectively. I do it myself. We all pick the statistics which suit our side of the argument. That is a tradition of debate in the House of Commons.

Mr. John Lee: Hear, hear.

Mr. Macleod: I hear a barrister cheering me, but it is also a tradition of the law courts, and it is not a bad tradition at that. But the hon. Member for Reading (Mr. John Lee) must not be so naive as to believe that because he hears the Chief Secretary say something about Australia, that is that. The right hon. Gentleman stopped using the figures for Australia beyond the point where they suited his argument.
We all know why this provision was included in the measures of 20th July last year. They were the most punitive measures ever taken by a Government in this country in peacetime. The Socialists, as they always do, put in one piece of malice which they could be certain their back benchers would cheer. We on this side of the Committee have seen this happen half a dozen times. Every time we try to anticipate what a Socialist Government will do in a Budget, or whatever it might be, we always ask the same question: what will be the little piece of vindictiveness and malice?
There is no doubt—and this is what we shall vote on—about its being absolutely blindingly irrelevant to the problems of the country, which were serious enough in July last year. It was put in purely as a sop to people like the hon. Member for Reading. I am not sneering at his point of view, which I understand, and which is that the Clause does not go far enough, but he should recognise that it is a sop to him and has no relevance


whatever to the nation's economic situation. That is why we wish to register our opposition to it.

Question put, That the Clause stand part of the Bill: —

The Committee divided: Ayes 239, Noes 149.

Division No. 348.]
AYES
[5.35 p.m.


Abse, Leo
Fitch, Alan (Wigan)
McNamara, J. Kevin


Allaun, Frank (Salford, E.)
Fletcher, Raymond (Ilkeston)
MacPherson, Malcolm


Alldritt, Walter
Fletcher, Ted (Darlington)
Mllalieu,J.P.W.(Huddersfield,E.)


Allen, Scholefield
Floud, Bernard
Manuel, Archie


Anderson, Donald
Foley, Maurice
Mapp, Charles


Archer, Peter
Foot, Sir Dingle (Ipswich)
Marsh, Rt. Hn. Richard


Armstrong, Ernest
Ford, Ben
Mason, Roy


Atkins, Ronald (Preston, N.)
Forrester, John
Mayhew, Christopher


Atkinson, Norman (Tottenham)
Fowler, Gerry
Mendelson, J. J.


Bacon, Rt. Hn. Alice
Fraser, John (Norwood)
Millan, Bruce


Bagier, Gordon A. T.
Freeson, Reginald
Miller, Dr. M. S.


Barnett, Joel
Galpern, Sir Myer
Milne, Edward (Blyth)


Baxter, William
Gardner, Tony
Mitchell, R. c. (S'th'pton, Test)


Beaney, Alan
Garrett, W. E.
Molloy, William


Bellenger, Rt. Hn. F. J.
Ginsburg, David
Morgan, Elystan (Cardiganshire)


Bence, Cyril
Gordon Walker, Rt. Hn. P. C.
Morris, Alfred (Wythenshawe)


Benn, Rt. Hn. Anthony Wedgwood
Gourlay, Harry
Morris, Charles R. (Openshaw)


Bessell, Peter
Gray, Dr. Hugh (Yarmouth)
Morris, John (Aberavon)


Binns, John
Greenwood, Rt. Hn. Anthony
Moyle, Roland


Blackburn, F.
Grey, Charles (Durham)
Newens, Stan


Booth, Albert
Griffiths, David (Rother Valley)
Noel-Baker, Francis (Swindon)


Bowden, Rt. Hn. Herbert
Griffiths, Rt. Hn. James (Lianelly)
Noel-Baker, Rt,Hn.Philip(Derby,S.)


Braddock, Mrs. E. M.
Grimond, Rt. Hn. J.
Ogden, Eric


Bradley, Tom
Hamilton, James (Bothwell)
O'Malley, Brian


Bray, Dr. Jeremy
Hamilton, William (Fife, W.)
Oram, Albert E.


Brooks, Edwin
Hamling, William
Orme, Stanley


Broughton, Dr. A. D. D.
Hannan, William
Owen, Will (Morpeth)


Brown, Rt. Hn. George (Belper)
Harper, Joseph
Padley, Walter


Brown, Hugh D. (G'gow, Provan)
Harrison, Walter (Wakefield)
Page, Derek (King's Lynn)


Buchan, Norman
Hart, Mrs. Judith
Paget, R. T.


Buchanan, Richard (G'gow, Sp'burn
Haseldine, Norman
Pannell, Rt. Hn. Charles


Butler, Herbert (Hackney, C.)
Hazel1!, Bert
Pardoe, John


Cant, R. B.
Heifer, Eric S.
Park, Trevor


Carmichael, Neil
Henig, Stanley
Pavitt, Laurence


Carter-Jones, Lewis
Herbison, Rt. Hn. Margaret
Pearson, Arthur (Pontypridd)


Castle, Rt. Hn. Barbara
Hooley, Frank
Peart, Rt. Hn. Fred


Chapman, Donald
Horner, John
Pentland, Norman


Coe, Denis
Houghton, Rt. Hn. Douglas
Perry, George H. (Nottingham, S.)


Coleman, Donald
Hoy, James
Prentice, Rt. Hn. R. E.


Concannon, J. D.
Huckfield, L.
Price, Christopher (Perry Barr)


Corbet, Mrs. Freda
Hughes, Emrys (Ayrshire, S.)
Price, Thomas (Westhoughton)


Carddock, George (Bradford, S.)
Hughes, Hector (Aberdeen, N.)
Price, William (Rugby)


Crawshaw, Richard
Hughes, Roy (Newport)
Probert, Arthur


Crossman, Rt. Hn. Richard
Hunter, Adam
Rankin, John


Cullen, Mrs. Alice
Jackson, Colin (B'h'se &amp; Spenb'gh)
Rees, Merlyn


Darling, Rt. Hn. George
Jackson, Peter M. (High Peak)
Rhodes, Geoffrey


Davidson, James(Aberdeenshire,W.)
Jenkins, Hugh (Putney)
Roberts, Albert (Normanton)


Davies, C. Elfed (Rhondda, E.)
Jones, Dan (Burnley)
Robinson, W. O. J. (Walth'tow, E.)


Davies, Ednyfed Hudson (Conway)
Jones, J. Idwal (Wrexham)
Rodgers, William (Stockton)


Davies, Harold (Leek)
Jones, T. Alec (Rhondda, West)
Rose, Paul


Davies, Ifor (Gower)
Kelley, Richard
Ross, Rt. Hn. William


Davies, S. O. (Merthyr)
Kerr, Dr. David (W'worth, Central)
Rowland, Christopher (Meriden)


Delargy, Hugh
Kerr, Russell (Feltham)
Rowlands, E. (Cardiff, N.)


Dempsey, James
Lawson, George
Sheldon, Robert


Dewar, Donald
Leadbitter, Ted
Shinwell, Rt. Hn. E.


Diamond, Rt. Hn. John
Lestor, Miss Joan
Shore, Peter (Stepney)


Dickens, James
Lewis, Arthur (W. Ham, N.)
Short,Rt.Hn.Edward(N'c'tle-u-Tyne)


Dobson, Ray
Lewis, Ron (Carlisle)
Short, Mrs. Renee(W'hampton,N.E.)


Doig, Peter
Lipton, Marcus
Silkin, Rt. Hn. John (Deptford)


Donnelly. Desmond
Loughlin, Charles
Silkin, Hn. S. C. (Dulwich)


Driberg, Tom
Lyon, Alexander W. (York)
Slater, Joseph


Dunn, James A.
Lyons, Edward (Bradford, E.)
Small, William


Dunwoody, Mrs. Gwyneth (Exeter)
McBride, Neil
Snow, Julian


Dunwoody, Dr. John (F'th &amp; C'b'e)
McCann, John
Spriggs, Leslie


Eadie, Alex
MacColl, James
Steel, David (Roxburgh)


Edwards, Rt. Hn. Ness (Caerphilly)
MacDermot, Niall
Steele, Thomas (Dunbartonshire, W.)


Edwards, William (Merioneth)
Macdonald, A. H.
Strauss, Rt. Hn. G. R.


Ellis, John
McGuire, Michael
Swingler, Stephen


Ennals, David
Mackenzie, Alasdair(Ross&amp;Crom'ty)
Symonds, J. B.


Ensor, David
Mackenzie, Gregor (Rutherglen)
Taverne, Dick


Evans, Albert (Islington, S.W.)
Mackie, John
Thorpe, Rt. Hn. Jeremy


Faulds, Andrew
Maclennan, Robert
Tinn, James


Fernyhough, E.
MaoMillan, Malcoin (Western Isles)
Tuck, Raphael


Finch, Harold
McMillan, Tom (Glasgow, C.)
Varley, Eric G.




Wainwright, Edwin (Dearne Valley)
Whitlock, William
Winnick, David


Wainwright, Richard (Coine Valley)
Williams, Alan (Swansea, W.)
Woof, Robert


Walden, Brian (All Saints)
Williams, Clifford (Abertillery)
Yates, Victor


Walker, Harold (Doncaster)
Williams, Mrs. Shirley (Hitchin)



Wallace, George
Willis, George (Edinburgh, E.)
TELLERS FOR THE AYES:


Watkins, David (Consett)
Wilson, Rt. Hn. Harold (Huyton)
Mr. W. Howie and


Wellbeloved, James
Wilson, William (Coventry, S.)
Mr. Ioan L. Evans.




NOES


Alison, Michael (Barkston Ash)
Hall, John (Wycombe)
Nabarro, Sir Gerald


Allason, James (Hemel Hempstead)
Hall-Davis, A. G. F.
Nicholls, Sir Harmar


Awdry, Daniel
Hamilton, Marquess of (Fermanagh)
Nott, John


Baker, W. H. K.
Hamilton, Michael (Salisbury)
Onslow, Cranley


Bell, Ronald
Harrison, Brian (Maldon)
Osborne, Sir Cyril (Louth)


Bennett, Sir Frederic (Torquay)
Harrison, Cot. Sir Harwood (Eye)
Page, Graham (Crosby)


Berry, Hn. Anthony
Harvey, Sir Arthur Vere
Page, John (Harrow, W.)


Bitten, John
Harvie Anderson, Miss
Percival, Ian


Birch, Rt. Hn. Nigel
Hawkins, Paul
Pounder, Rafton


Blaker, Peter
Heath, Rt. Hn. Edward
Powell, Rt. Hn. J. Enoch


Bossom, Sir Clive
Heseltine, Michael
Prior, J. M. L.


Boyd-Carpenter, Rt. Hn. John
Higgins, Terence L.
Pym, Francis


Boyle, Rt. Hn. Sir Edward
Hiley, Joseph
Ramsden, Rt. Hn. James


Braine, Bernard
Hill, J. E. B.
Renton, Rt. Hn. Sir David


Brewis, John
Hirst, Geoffrey
Ridley, Hn. Nicholas


Brinton, Sir Tatton
Hogg, Rt. Hn. Quintin
Rossi, Hugh (Hornsey)


Bromley-Davenport, Lt.-Col.Sir Walter
Holland, Philip
Royle, Anthony


Brown, Sir Edward (Bath)
Hordern, Peter
Russell, Sir Ronald


Bruce-Gardyne, J.
Hornby, Richard
Scott, Nicholas


Buchanan-Smith, Alick(Angus,N&amp;M)
Hunt, John
Smith, John


Buck, Antony (Colchester)
Irvine, Bryant Godman (Rye)
Stainton, Keith


Bullus, Sir Eric
Jenkin, Patrick (Woodford)
Stodart, Anthony


Burden, F. A.
Jopling, Michael
Stoddart-Scott, Col. Sir M. (Ripon)


Campbell, Gordon
Kerby, Capt. Henry
Summers, Sir Spencer


Carr, Rt. Hn. Robert
Kimball, Marcus
Tapsell, Peter


Channon, H. P. G.
King, Evelyn (Dorset, S.)
Taylor, Sir Charles (Eastbourne)


Chichester-Clark, R.
Kirk, Peter
Taylor,Edward M.(G'gow,Cathcart)


Cooke, Robert
Kitson, Timothy
Taylor, Frank (Moss Side)


Costain, A. P.
Lambton, Viscount
Temple, John M.


Crosthwaite-Eyre, Sir Oliver
Lancaster, Col. C. G.
Thatcher, Mrs. Margaret


Dalkeith, Earl of
Lloyd, Ian (P'tsm'th,Langstone)
Tilney, John


Dance, James
Longden, Gilbert
Turton, Rt. Hn. R. H.


d'Avigdor-Goldsmid, Sir Henry
McAdden, Sir Stephen
van Straubenzee, W. R.


Dean, Paul (Somerset, N.)
Macleod, Rt. Hn. lain
Vaughan-Morgan, Rt. Hn. Sir John


Dodds-Parker, Douglas
McMaster, Stanley
Walker, Peter (Worcester)


Doughty, Charles
Macmillan, Maurice (Farnham)
Ward, Dame Irene


Eden, Sir John
Maginnis, John E.
Weatherill, Bernard


Elliott.R.W(N'c'tle-upon-Tyne.N.)
Maude, Angus
Webster, David


Emery, Peter
Mawby, Ray
Whitelaw, Rt. Hn. William


Errington, Sir Eric
Maxwell-Hyslop, R. J.
Wills, Sir Gerald (Bridgwater)


Eyre, Reginald
Maydon, Lt.-Cmdr. S. L. C.
Wilson, Geoffrey (Truro)


Fortescue, Tim
Mills, Peter (Torrington)
Wood, Rt. Hn. Richard


Gaibraith, Hon. T. G.
Mills, Stratton (Belfast, N.)
Woodnutt, Mark


Gibson-Watt, David
Miscampbell, Norman
Worsley, Marcus


Gilmour, Sir John (Fife, E.)
Mitchell, David (Basingstoke)
Wright, Esmond


Glover, Sir Douglas
Monro, Hector
Wylie, N. R.


Gower, Raymond
Morgan, Geraint (Denbigh)
Younger, Hn. George


Grant-Ferris, R.
Morrison, Charles (Devizes)
TELLERS FOR THE NOES:


Gresham Cooke, R.
Mott-Radclyffe, Sir Charles
Mr. Jasper More and


Griffiths, Eldon (Bury St. Edmunds)
Munro-Lucas-Tooth, Sir Hugh
Mr. Anthony Grant.


Gurden, Harold
Murton, Oscar

Clause ordered to stand part of the Bill.

Clause 16.—(INCREASE OF RELIEF FOR DEPENDENT RELATIVE OF FEMALE CLAIMANT AND FOR WIDOWS AND OTHERS IN RESPECT OF CHILDREN.)

Mrs. Margaret Thatcher: I beg to move Amendment No. 86, in page 18, line 33, to leave out 'ten' and to insert 'twenty'.

The Temporary Chairman (Mr. Jennings): It will be for the convenience of the Committee if we consider at the same time Amendment No. 87, in page 18, line

37, leave out 'twenty' and insert 'seventy', and Amendment No. 88 in page 18, line 37, after 'pounds', insert:
 and for the reference in that subsection to two hundred and ten pounds there shall be substituted a reference to two hundred and fifty pounds'.

Mrs. Thatcher: We now come to the Clause which gives special tax relief to single women who are maintaining dependent relatives, and we have a number of Amendments on the Notice Paper, the first of which is to increase the relief given to £120. This relief at the moment is £75, and the Bill increases it to £110.


It is a rather curious figure to have selected, and we have chosen the figure of £120 for a very good reason.
An example may make it clear to the Financial Secretary. There might often be cases of an elderly couple where the husband dies leaving the mother a widow. Her support is then carried on by her daughter. Daughters frequently take over the task of supporting their mother or other relatives. The irony of the Financial Secretary's suggestion would be that the mother, during her lifetime as the wife of her husband, would be ranked for an allowance of £120, but when her support is taken over by her daughter that tax allowance would be reduced to £110 on this suggestion.
So, while husband is maintaining wife he gets in respect of her a tax allowance of £120; when daughter maintains that same woman, her mother, the tax allowance is reduced. This seems to make neither rhyme nor reason. It seems to be very much better, if the Financial Secretary is to give this extra help, and we welcome what he is doing, that he gives it in some reasonable amount, and we would suggest that the sum of £120 would be very much better than £110, not merely because it is £10 more, but because it is related to the other personal relief.
5.45 p.m.
One has to note in this Clause that relief is given only if the relative is incapacitated by old age or infirmity from maintaining himself or herself, or is an elderly person. In either case, one would expect that the elderly or infirm person can often do less than an ordinary hale and hearty man or woman. So that is another reason why the relief should at any rate be equal to that for a wife and it would be a reason why it should probably be put up even further. That is not an argument which I am advancing at the moment, but there are good arguments for making it at least £120.
The other Amendments, to which I will refer briefly, concern the limits up to which a person is regarded as a dependent relative. These are changed quite frequently, but it is noticeable, if one goes back in history, that they have hitherto always been moved in years when there has been an increase in retirement pension, so that as there has

been an increase in retirement pension the income limits which enable a person to claim relief have been put up. That is obviously in order that the increase in pension should not be clawed back in tax.
There has never been an increase given without an increase in pension. The point is that if the Financial Secretary and the Government are really setting out to give preferential relief to the single woman, who often bears many burdens, and supports her ageing parents, frequently with precious little help, it would be as well to raise these particular limits. At the moment, as the Financial Secretary knows, on his proposals full relief of £110 would be given in respect of a relative who had an income of £210 a year—which is just over £4 a week—or less. Over that income of £4 a week, the relief would taper off until it was extinguished at £320 a year. It would dwindle and dwindle, until it was totally extinguished after the dependent relative had an income of just over about £6 10s. a week.
What we are proposing is that the full relief should be given up to an income of £250, and thereafter it should taper off. If our £120 suggestion was accepted, the relief would not be extinguished until a dependent relative had an income of £370 a year. This would be the first real advance on that relief which we have had for a long time.
There are some very good reasons for giving that increased relief. At the moment, the single scale rate is £4 10s. for an old person—that is, £234 a year. That is the minimum, without any allowance for rent. Therefore, we should put on only a very modest amount—a few shillings—for rent. An income of £250 is by no means large.
We put forward these Amendments in the hope that the Financial Secretary will be able to accept one, or preferably both, of them. I had hoped that now that we are no longer on the Surtax Clauses the benches behind the Financial Secretary would have filled. For the Labour Party, justice usually ceases where Surtax begins. But justice usually begins from nought up to Surtax. Perhaps I have been mistaken in that view. I hope that the two hon. Members on the benches opposite will be in favour of our proposal.

Mr. Paul Dean: I support the very strong case which my hon. Friend the Member for Finchley (Mrs. Thatcher) put forward for this modest Amendment.
There is only one solitary Member on the Government back benches. Here we have one of the few opportunities which will arise during our discussion of the Bill to discuss what one might call the social service Clauses. It is an extraordinary commentary on the interest of the Labour Party in these matters that it is able to muster no more than one honourable and hearty soul for the debate. I hope that he will not only listen to the debate, but will take part in it. [Laughter.]

Sir Douglas Glover: It is not a laughing matter.

Mr. Dean: It is not a laughing matter, but I will give the hon. Member for Heywood and Royton (Mr. Barnett) the benefit of the doubt and say that he is laughing in embarrassment caused by the absence of his colleagues.

Mr. Barnett: I should not mind betting that I have spent a little more time in the Committee during the Bill's proceedings than the hon. Gentleman.

Mr. Dean: I concede that willingly to the hon. Gentleman. The point which I am making is that when Surtax was being discussed there was a quite respectable gathering on the benches opposite, but now that we are discussing the social service Clauses and people who are bearing burdens through looking after elderly relatives—

The Temporary Chairman: Order. We have dealt at length with this point about the attendance, or lack of it, in the Chamber. Let us now get on with the Amendment.

Mr. Dean: I am sorry that I was provoked into a diversion. I will return to the Amendment.

Sir D. Glover: Perhaps hon. Members opposite are looking after dependent relatives.

Mr. Dean: That is an interesting thought, but I had better not develop it, otherwise I should incur the displeasure of the Chair.
We are dealing with people, many of them single women, who are bearing a very considerable burden. In many cases, they have sacrificed jobs and prospects to look after elderly and infirm relatives. We hear constantly from Ministers who administer the social services the plea that this cash allowance and other cash allowances cannot be increased at present because the resources are not available. Here we have a chance in these Amendments to give a little more assistance and encouragement to those who, because they are bearing family responsibilities, are saving what would otherwise be a very much bigger burden on the cash and care services of the State.
I hope that that economic argument will appeal to the Financial Secretary. On 20th March he said that the tax forgone on the dependent relative allowance now amounts to about £34 million a year. That is a comparatively modest sum of taxation to forgo when one considers the work and family responsibilities which these women are bearing. The cost to the State would be very much greater if they were not able and encouraged to bear it.
It is interesting to note that most of the dependent relative tax relief is going to those on comparatively modest incomes. We are sometimes told that the more we extend the tax relief system, the more we pile on additional benefits for the rich. But the figures which the Financial Secretary gave show quite clearly that the bulk of the tax forgone goes to those who have incomes under £2,000 a year. The figure for those whose income is over £2,000 is given by the Financial Secretary as negligible
Bearing in mind the very strong arguments put forward by my hon. Friend the Member for Finchley and the relationship between this tax relief and the cash benefits within the social services, I hope that the Financial Secretary will accept the Amendment.

Mr. Barnett: I am tempted to speak as hon. Members opposite have chided us because there are fewer Members on this side of the Committee than there have been heretofore. Having sat here for some time, I would remark that there are fewer Members opposite than there have been heretofore, and I am tempted to wonder whether that is


because a certain race is being run at Epsom—[HON. MEMBERS: "It has been run."] That shows how ignorant I am in these matters. Hon. Members opposite are much better informed on them. Last night, one of them made a great plea for the rich but non-industrious Surtax payers, as they were described. He thought it a terrible shame that there are so few British racehorse owners left. For hon. Members opposite to chide us and to say that we do not care about the poorer sections of the community who are affected by the relief which we are discussing is a little rich.
I am always tempted to support what the hon. Lady the Member for Finchley (Mrs. Thatcher) says. She presents her case in a very charming manner, although today the charming dress which she is wearing clashes a bit with the colour of the bench on which she sits. However, that would not prevent me from supporting her case if I thought that it was a strong case.
I would very much encourage the idea of helping people to look after their old relatives, having seen something of it in my family, and having seen something of the situation of old people, no matter how well they are looked after in the best of old people's homes. There are old people's homes which are very well run by wonderful wardens. For instance, there are really dedicated people in the Salvation Army. Nevertheless, the ideal situation is for old people to live in the happiness of their own family. If there is anything that we can do to encourage that, then certainly I should support it.
However, any figure which is fixed for dependent relative relief is arbitrary. The Government have chosen this year to increase it to £110. I wonder, as the hon. Lady did, how on earth we get the £110. She has a very ingenious method of arriving at the figure of £120. That is precisely the difference between what the person would have for a widowed mother and what he would have for a wife.
We can find all sorts of anomalies of this kind in family allowances, whatever formula we adopt. It is arguable whether it is more expensive to keep a wife than a widowed mother. It would be an interesting argument to pursue. I doubt whether many husbands in this House would not agree that it is much more

expensive to keep a wife than a widowed mother. It is an arguable point. Some hon. Members may disagree, but I would have thought that, generally speaking— depending upon the wife—it is more expensive to keep a wife.

Mrs. Thatcher: I cannot allow this to pass. On the whole, bearing in mind the number of duties that they perform, wives are very badly paid by their husbands.

6.0 p.m.

Mr. Barnett: I am sure that the hon. Lady deserves every penny she is paid. I have no doubt that many wives deserve more, but I am making the simple point that it is likely that most husbands would agree that it is more expensive to keep a wife than a widowed mother.

Mr. Bernard Braine: One can argue along those lines, but surely the hon. Member is aware that in many instances in his own constituency —it is certainly so in mine—a woman has a dependent relative who does not enjoy the best of health, when the strain of care and the need for extra nourishment can impose a frightful burden. The hon. Member must not make light of the situation.

Mr. Barnett: I was not for a moment making light of it. The hon. Member will be able to make his own speech in his own time. He should not impute to me that I was making light of the burden of maintaining old people. I agree that it is a great burden, and not only in financial terms. It is a burden in terms which cannot be measured—in terms of love and affection. But it is a minor point that we are debating, namely, the question of which arbitrary figure we should use as a dependent relative allowance. That is the point at issue.
The only argument put forward by the hon. Lady was that it would be better to have £120 than £110. She equated this with the relationship between maintaining a widowed mother and a wife. That was her only real argument. We could choose £150. I should be delighted to give £200 in respect of a dependent relative allowance. We want to increase these allowances. But if—as we must—we have to choose an arbitrary figure, it is stretching the debate to make a great deal of the question whether it should be £120 or £110.
The hon. Member for Somerset, North (Mr. Dean) said that this increase was going to those on the most modest of incomes. Very often the most modest incomes of all are those of people who are not paying tax—certainly those who are not paying tax at the standard rate. If those people are maintaining a dependent relative they get no allowance. So, although we want to give some dependent allowance in respect of the person who is paying tax at the standard rate or at a reduced rate, we also have to bear in mind, when playing about with the total national income, the fact that anything we give away here, or any reduction we make in tax revenue, means that less is available in benefits for those whom we need to help but who are not paying tax at all

Mr. Braine: I support the Amendments, the case for which was argued so cogently by my hon. Friend the Member for Finchley (Mrs. Thatcher) that there is no need for anyone to speak at length in their support. The Bill provides increased relief to a single woman with a dependent relative, and in that sense the provision can be welcomed. But I find it exceedingly odd that while the Bill alters the top income limit it leaves the bottom limit unchanged. As I understand, the Amendments raise the top limit further, but also increase the bottom limit. I am sure that that is only right and fair, and I hope that the Financial Secretary will be able to say that the Government are prepared to accept these modest suggestions.
Our proposals are right, because our aim should be to encourage people to shoulder family responsibilities. I have always argued that the system of family allowances should not have been limited to dependent children. It should have been extended to those who have dependent relatives.
This is not the time and place to argue what the structure, philosophy or purpose of the Welfare State should be, but it is clear than an increasing number of our old people will have to be cared for. They are living longer. It is better that, as far as possible, we preserve their independence in their own homes. It is better that they should remain in the bosoms of their families, rather than drift into institutions. There is no argument about

that. It is clear that old people need their independence, and that they also need a degree of privacy in the home. What they and their relatives were prepared to put up with years ago has undergone a considerable change.
I enjoyed the speech of the hon. Member for Heywood and Royton (Mr. Barnett). When I intervened I merely wanted to say that it is impossible to equate the position of a dependent relative with that of a wife. In some cases a wife is a very costly member of the family; in others, thank heavens, she is the means by which the family is held together and its income is properly spent. We cannot generalise about this. Similarly, many a girl who may have forfeited her chance of marriage in order to look after a widowed mother finds it a very great strain. She may find it a far greater burden than her father did when he was alive.
The hon. Member said that we cannot put an arithmetical figure on this; it is a purely arbitrary decision. The Government have decided upon a certain figure and the Opposition suggests a higher figure. Perhaps all these figures are arbitrary, but it seems to me that it would be arbitrary indeed to say that we should not extend in respect of a dependent relative the same treatment as we extend in respect of a dependent wife. For those reasons I strongly support the Amendments.
A tax allowance should be the minimum amount necessary to maintain a dependent relative, and it is impossible for us to decide that the mother of a working woman, maintained by that working woman and provided with a home by her, is less costly to maintain than the wife of a man, working in the same employment. What we are asking for here is that justice should be done. We should not, therefore, discriminate as between the cost of maintaining a dependent mother or other dependent relative, on the one hand, and the cost of maintaining a wife, on the other.
After all, a daughter who goes out to work and maintains her widowed mother has precisely the same expenses. The House has to be maintained. I have constituents who say to me, "Why should I be treated differently? T have had mortgage repayments to make since my


father died. I have rates to pay. My mother costs as much to feed now as she did as my father's wife." It is illogical for the hon. Gentleman to argue as he did. It seems to me that the Amendments make good, sound, social sense. They also make economic sense, because they encourage a feeling of responsibility among a large number of people who do not merely consider it a duty to maintain their relatives but enjoy going on doing their work. It gives them a raison d'être. It seems to me that there is a case for behaving generously here.
The Chancellor admitted at the end of an extremely dull and unedifying Budget statement that here was a class of person who needed our help and sympathy. He has moved a little in that direction. All that we ask the hon. and learned Gentleman to do is move a little further and recognise the principle of equity which lies behind these Amendments.

The Financial Secretary to the Treasury (Mr. Niall MacDermot): If the case was as clear as hon. Members opposite appear to suggest for equating the amount of this allowance with the difference between the single person's and the married person's personal allowance, ft is astonishing to me that it did not dawn on them when they were in office.
What has happened is that, in this Clause, the Chancellor has proposed a very substantial increase in the dependent relative's allowance. The present allowance is £75 to a taxpayer maintaining a dependent relative who is incapacitated by old age or infirmity. The Chancellor proposes to increase that to £110 where the taxpayer supporting the relative single-handed is a single woman, including in that term a widow, a divorced person, or a separated wife.
Out of the generosity of our hearts, we should all like to be able to increase all tax allowances. However, knowing that he had very little room for manoeuvre this year, my right hon. Friend was moved by the representations which were made, particularly following the campaign by the National Council for the Single Woman and her Dependents, on behalf of this specially deserving class, as it appeared to him, of single women who have to maintain elderly relatives.
There is a special reason for helping this class. Not unnaturally, there have been objections and protests from some single men who maintain elderly relatives and who may, in the particular circumstances of the complainant, not have a greater income than some single women who will benefit from the Clause. Naturally, there have been protests of that kind. I think that the right answer to give is that, taking the generality of the class, single women earn lower incomes than men in comparable positions, and the fact that the Chancellor is not able to help everyone in this position is not a reason for not trying to help a clearly definable class who appear to be more deserving.
6.15 p.m.
The first Amendment is the proposal that the increase should be to £120 instead of to £110. This calls for an explanation of why my right hon. Friend chose the £110 figure. The argument for the Amendment is based on the extra amount of the personal allowance of a married man, compared with a single man. It is said that this is comparable to the position of a man who maintains his wife and, therefore, that the personal allowance should be comparable.
The point is that the two situations are not alike. It is for that reason that it has been thought right to choose the £110 figure. In trying to pitch the allowance at the right figure, one has to try to do justice between taxpayers with differing personal circumstances. If we did what is being asked and equated it to the extra allowance which a married man receives in respect of his wife, we should be ignoring the fact and the distinction that the married man's allowance is not an allowance for one person but for two persons. Indeed, it is often an allowance for two incomes. The dependent relative's allowance is an allowance for one person, for the dependent relative. The relative who is being supported also has a personal allowance, and his or her income is not aggregated with that of the supporting relative.
The hon. Member for Finchley (Mrs. Thatcher) quoted as an example the case of a married woman who is widowed, and, instead of being supported by her husband, is supported by her daughter. However, when the father dies and the


daughter takes over responsibility for the care of her mother, it is not true that the allowance in respect of her mother drops from £120 as a wife to £110 as a dependant, because the mother now gets a £220 personal allowance for herself in addition to the £110 allowance to which the daughter is to be entitled.
It is for that reason and to keep some proportion between the two cases which we were asked to compare—the daughter supporting her mother and the husband supporting his wife—that my right hon. Friend thought that a generous figure was £110, still leaving some distinction between that and the £120 for the married person.
With this Amendment we are discussing Amendments Nos. 86 and 87, and they deal with the taper to avoid a sudden cut-off. If the income limit of the dependant is about £210, there is a provision for tapering the allowance. The Amendments propose to raise the income limit of the dependant, up to which the full dependent relative's allowance would be given, from £210 to £250. The tapered allowance for a dependent relative with an income in excess of the limit for the full allowance would begin at £250. With an allowance of £120 as proposed in the other Amendment, no allowance would be due where the dependant's income was £370 or more. These more favourable income limits would apply only to dependent relatives maintained by single women.
Of itself, the increase in the allowance to £110 which my right hon. Friend is proposing carries with it an increase in the limit of the tapered allowance from £284 to £319. It is our view that a further special increase in the dependant's

income limit in these cases would not be justified.

I accept what the hon. Lady implied, that there is no reason to be tied blindly in this respect to the National Insurance pension level, but I think that the short answer to the proposal in these further Amendments to raise the dependant's income limit for full dependent relative allowance is that there is no reason to have a bigger income limit for the test of dependency on a single woman than for a test of dependency on other people. The basis for the increase in the basic allowance falls when we come to consider what should be the income limits of the dependent relative in this connection.

As I have said, the reasons for taking account of the additional difficulties of the single woman are that she often cannot work full-time because of the need to look after the dependant, and that in any case her rate of earning is lower than that of a man. Neither of these points argues in favour of raising the relative's own income limit up to which the full allowance is given. For these reasons, we propose increasing the dependent relative allowance in the way that is suggested, but not making any addition to the limits of the dependant's own income for these purposes.

Mrs. Thatcher: I am a little disappointed with the Financial Secretary's reply, but I shall not detain the Committee. Perhaps it would be better if we showed what we felt about this in the Division Lobbies.

Question put, That 'ten' stand part of the Clause: —

The Committee divided: Ayes 216, Noes 147.

Division No. 349.]
AYES
[6.21 p.m.


Abse, Leo
Booth, Albert
Coleman, Donald


Allaun, Frank (Salford, E.)
Bowden, Rt. Hn. Herbert
Concannon, J. D.


Alldritt, Walter
Braddock, Mrs. E. M.
Corbet, Mrs. Freda


Allen, Scholefield
Bradley, Tom
Craddock, George (Bradford, S.)


Anderson, Donald
Bray, Dr. Jeremy
Crawshaw, Richard


Archer, Peter
Brooks, Edwin
Cronin, John


Armstrong, Ernest
Broughton, Dr. A. D. D.
Cullen, Mrs. Alice


Atkins, Ronald (Preston, N.)
Brown, Rt. Hn. George (Belper)
Davidson, Arthur (Accrington)


Atkinson, Norman (Tottenham)
Brown, Hugh D. (G'gow, Provan)
Davies, G. Elfed (Rhondda, E.)


Bacon, Pt. Hn. Alice
Buchan, Norman
Davies, Ednyfed Hudson (Conway)


Barnett, Joel
Buchanan, Richard (G'gow, Sp'burn)
Davies, Harold (Leek)


Beaney, Alan
Butler, Herbert (Hackney, C.)
Davies, Ifor (Gower)


Bellenger, Rt. Hn. F. J.
Callaghan, Rt. Hn. James
Davies, S. 0. (Merthyr)


Bence, Cyril
Cant, R. B.
Delargy, Hugh


Benn, Rt. Hn. Anthony Wedgwood
Carmichael, Neil
Dell, Edmund


Binns, John
Castle, Rt. Hn. Barbara
Dewar, Donald


Blackburn, F.
Chapman, Donald
Diamond, Rt. Hn. John


Blenkinsop, Arthur
Coe, Denis
Dickens, James




Dobson, Ray
Jackson, Peter M. (High Peak)
Pearson, Arthur (Pontypridd)


Doig, Peter
Jenkins, Hugh (Putney)
Peart, Rt. Hn. Fred


Donnelly, Desmond
Jones, Dan (Burnley)
PentIand, Norman


Driberg, Tom
Jones, J. Idwal (Wrexham)
Perry, George H. (Nottingham, S.)


Dunn, James A.
Jones, T. Alee (Rhondda, West)
Prentice, Rt. Hn. R. E.


Dunwoody, Mrs. Gwyneth (Exeter)
Kelley, Richard
Price, Christopher (Perry Barr)


Dunwoody, Dr. John (F'th &amp; C'b'e)
Kerr, Dr. David (W'worth, Central)
Price, Thomas (Westhoughton)


Eadie, Alex
Kerr, Russell (Feltham)
Price, William (Rugby)


Edwards, Rt. Hn. Ness (Caerphilly)
Lawson, George
Probert, Arthur


Edwards, William (Merioneth)
Leadbitter, Ted
Rankin, John


Ellis, John
Lestor, Miss Joan
Rees, Merlyn


Ennals, David
Lewis, Arthur (W. Ham, N.)
Rhodes, Geoffrey


Ensor, David
Lewis, Ron (Carlisle)
Robinson,Rt.Hn.Kenneth(St.P'c'as)


Evans, Albert (Islington, s.w.)
Loughlin, Charles
Robinson, W. O. J. (Walth'stow, E.)


Evans, Ioan L. (Birm'h'm, Yardley)
Lyon, Alexander W, (York)
Rose, Paul


Faulds, Andrew
Lyons, Edward (Bradford, E.)
Ross, Rt. Hn. William


Fernyhough, E.
McBride, Neil
Rowlands, E. (Cardiff, N.)


Finch, Harold
McCann, John
Sheldon, Robert


Fitch, Alan (Wigan)
MacColl, James
Shinwell, Rt. Hn. E.


Fletcher, Raymond (Iikeston)
MacDermot, Niall
Shore, Peter (Stepney)


Fletcher, Ted (Darlington)
Macdonald, A. H.
Short, Rt.Hn.Edward(N'c'tle-u-Tyne)


Foley, Maurice
McGuire, Michael
Silkin, Rt. Hn. John (Deptford)


Foot, Sir Dingle (Ipswich)
Mackenzie, Gregor (Rutherglen)
Silkin, Hn. S. C. (Dulwich)


Ford, Ben
Mackie, John
Slater, Joseph


Forrester, John
Maclennan, Robert
Snow, Julian


Fowler, Gerry
MacMillan, Malcolm (Western Isles)
Spriggs, Leslie


Freeson, Reginald
McMillan, Tom (Glasgow, C.)
Steele, Thomas (Dunbartonshire, W.)


Galpern, Sir Myer
McNamara, J. Kevin
Strauss, Rt. Hn. G. R.


Gardner, Tony
MacPherson, Malcolm
Swingler, Stephen


Ginsburg, David
Mallalieu,J.P.W.(Huddersfie4d,E.)
Symonds, J. B.


Gordon Walker, Rt. Hn. P. C.
Manuel, Archie
Taverne, Dick


Gourlay, Harry
Mapp, Charles
Tinn, James


Gray, Dr. Hugh (Yarmouth)
Mason, Roy
Tuck, Raphael


Greenwood, Rt. Hn. Anthony
Mayhew, Christopher
Varley, Eric C.


Griffiths, David (Rother Vailey)
Mendelson, J. J.
Wainwright, Edwin (Dearne Valley)


Griffiths, Rt. Hn. James (Laneily)
Millan, Bruce
walden, Brian (All Saints)


Hamilton, James (Bothwell)
Miller, Dr. M. S.
Walker, Harold (Doncaster)


Hamilton, William (Fife, W.)
Milne, Edward (Blyth)
Watkins, David (Consett)


Hannan, William
Mitchell, R. C. (S'th'pton, Test)
Wellbeloved, James


Harper, Joseph
Molloy, William
Whitlock, William


Harrison, Walter (Wakefield)
Morgan, Elystan (Cardiganshire)
Williams, Alan (Swansea, W.)


Hart, Mrs. Judith
Morris, Alfred (Wythenshawe)
Williams, Clifford (Abertillery)


Haseldine, Norman
Morris, Charles R. (Openshaw)
Williams, Mrs. Shirley (Hitchin)


Hazell, Bert
Moyle, Roland
Willis, George (Edinburgh, E.)


Heifer, Eric S.
Newens, Stan
Wilson, Rt. Hn. Harold (Huyton)


Henig, Stanley
Noel-Baker, Francis (Swindon)
Wilson, William (Coventry, 8.)


Herbison, Rt. Hn. Margaret
Noel-Baker,Rt.Hn.Philip(Derby,S.)
Winnick, David


Hooley, Frank
Ogden, Eric
Winterbottom, R. E.


Homer, John
Oram, Albert E.
Woof, Robert


Houghton Rt. Hn. Douglas
Orme, Stanley
Yates, Victor


Hoy, James
Padley, Walter



Huckfield, L.
Page, Derek (King's Lynn)



Hughes, Emrys (Ayrshire, S.)
Paget, R. T.
TELLERS FOR THE AYES


Hughes, Roy (Newport)
Panned, Rt. Hn. Charles
 Mr. W. Howie and


Hunter, Adam
Park, Trevor
 Mr. Brian O'Malley.


Jackson, Colin (B'h'se &amp; Spenb'gh)
Pavitt, Laurence





NOES


Alison, Michael (Barkston Ash)
Cooke, Robert
Hamilton, Michael (Salisbury)


Allason, James (Hemel Hempstead)
Costain, A. P.
Harris, Reader (Heston)


Awdry, Daniel
Crosthwaite-Eyre, Sir Oliver
Harrison, Col. Sir Harwood (Eye)


Baker, W. H. K.
Dance, James
Harvey, Sir Arthur Vere


Bell, Ronald
Davidson,James(Aberdeenshire,W.)
Harvie Anderson, Miss


Bennett, Sir Frederic (Torquay)
d'Avigdor-Goldsmid, Sir Henry
Hawkins, Paul


Berry, Hn. Anthony
Dean, Paul (Somerset, N.)
Heseltine, Michael


Bessell, Peter
Dodds-Parker, Douglas
Higgins, Terence L.


Biffen, John
Doughty, Charles
Hiley, Joseph


Birch, Rt. Hn. Nigel
Eden, Sir John
Hill, J. E. B.


Blaker, Peter
Errington, Sir Eric
Hirst, Geoffrey


Bossom, Sir Clive
Eyre, Reginald
Holland, Philip


Boyd-Carpenter, Rt. Hn. John
Fortescue, Tim
Hordern, Peter


Boyle, Rt. Hn. Sir Edward
Galbraith, Hon. T. C.
Hornby, Richard


Braine, Bernard
Gibson-Watt, David
Hunt, John


Brewis, John
Gilmour, Sir John (Fife, E.)
Irvine, Bryant Godman (Rye)


Brinton, Sir Tatton
Glover, Sir Douglas
Jenkin, Patrick (Woodford)


Brown, Sir Edward (Bath)
Gower, Raymond
Jopling, Michael


Bruce-Gardyne, J.
Grant-Ferris, R.
Kerby, Capt. Henry


Buchanan-Smith,Alick(Angus,N&amp;M)
Gresham Cooke, R.
Kimball, Marcus


Buck, Antony (Colchester)
Grimond, Rt. Hn.
King, Evelyn (Dorset, S.)


Bullus, Sir Eric
Gurden, Harold
Kirk, Peter


Campbell, Gordon
Hall, John (Wycombe)
Kitson, Timothy


Carr, Rt. Hn. Robert
Hall-Davis, A. G. F.
Lambton, Viscount


Chichester-Clark, R.
Hamilton. Marquess of (Fermanagh)
Lewis, Kenneth (Rutland)







Lloyd, Ian (P'tsm'th, Langstone)
Onslow, Cranley
Temple, John M.


McAdden, Sir Stephen
Osborne, Sir Cyril (Louth)
Thatcher, Mrs. Margaret


Mackenzie, Alasdair(Ross&amp;Crom'ty)
Page, Graham (Crosby)
Thorpe, Rt. Hn. Jeremy


Macleod, Rt. Hn. Iain
Page, John (Harrow, W.)
Tilney, John


McMaster, Stanley
Pardoe, John
van Straubenzee, W. R.


Macmillan, Maurice (Farnham)
percival, Ian
Vaughan-Morgan, Rt. Hn. Sir John


Maddan, Martin
pounder, Rafton
Wainwright, Richard (Colne Valley)


Maginnis, John E,
Powell, Rt. Hn. J. Enoch
Walker, Peter (Worcester)


Marples, Rt. Hn. Ernest
Prior, J. M. L.
Ward, Dame Irene


Maude, Angus
Pym, Francis
Weatherill, Bernard


Mawby, Ray
Ramsden, Rt. Hn. James
Webster, David


Maxwell-Hyslop, R. J.
Renton, Rt. Hn. Sir David
Whitelaw, Rt. Hn. William


Maydon, Lt.-Cmdr. S. L. C.
Ridley, Hn. Nicholas
Wills, Sir Gerald (Bridgwater)


Mills, Peter (Torrington)
Rossi, Hugh (Hornsey)
Wilson, Geoffrey (Truro)


Mills, Stratton (Belfast, N.)
Royle, Anthony
Winstanley, Dr. M. P.


Monro, Hector
Russell, Sir Ronald
Wolrige-Gordon, Patrick


More, Jasper
Scott, Nicholas
Wood, Rt. Hn. Richard


Morgan, Geraint (Denbigh)
Smith, John
Woodnutt, Mark


Morrison, Charles (Devizes)
Stainton, Keith
Worsley, Marcus


Mott-Radclyffe, Sir Charles
Steel, David (Roxburgh)
Wright, Esmond


Munro-Lucas-Tooth, Sir Hugh
Stodart, Anthony
Wylie, N. R.


Murton, Oscar
Summers, Sir Spencer
Younger, Hn. George


Nabarro, Sir Gerald
Taylor, Sir Charles (Eastbourne)



Nicholls, Sir Harmar
Taylor,Edward M.(G'gow,Cathcart)
TELLERS FOR THE NOES:


Nott, John
Taylor, Frank (Moss Side)
Mr. R. W. Elliott and




Mr. Anthony Grant.

6.30 p.m.

Mr. Dean: I beg to move Amendment No. 138, in page 19, line 3, to leave out 'seventy-five' and to insert 'one hundred and twenty'.

The Temporary Chairman: I suggest that it would be convient to discuss, at the same time, Amendment No. 137, in line 4, after 'and', insert:
'in section 218 of the Income Tax Act 1952 for the reference to seventy-five pounds there shall be substituted a reference to one hundred and twenty pounds and'.

Mr. Dean: Subsection (3) proposes to raise, from £40 to £75, the allowance available for widows, widowers and single people in charge of children and who cannot qualify for the housekeeper allowance proper. In other words, it proposes to put the child-minder allowance on all fours with the housekeeper allowance, and this makes a good deal of sense. However, the Government propose to leave the housekeeper allowance exactly as it is. The subsection does not increase it. The object of the Amendment is to raise both the housekeeper allowance and the child-minder allowance to £120.
The first of two powerful arguments which I wish to adduce was made by the Chancellor in his Budget speech. He said:
For Income Tax purposes there is at present a well defined category of taxpayers made up of widows, widowers and certain other taxpayers who have single-handed responsibility for children. Here again, especially in the case of widows with children who go out

to work there is a lot of near hardship."— [OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 1009.]

The right hon. Gentleman admitted that a lot of near-hardship exists, particularly for widows who go out to work. If he admits this, why has he increased one allowance, but left the other exactly as it is? If he admits that there is hardship for these widows, he should have increased not just one allowance, but both. After all, they both fulfil similar purposes; they assist the widow who goes out to work in the extra expenditure in which she is involved in paying for someone to look after her children while she is working.
My second powerful argument was adduced by the right hon. Lady who is now the Minister of Transport, when a somewhat similar Amendment was proposed by her hon. Friends. On that occasion—though she was then in opposition—she said:
This housekeeping allowance was £50 before the war. It is only £75 today. Can we in all conscience say that it has been increased pro rata to the absolutely fantastic increase in the cost of living? Are we not in fact progressively worsening the position of widows and widowers with children who need to employ this kind of help? Are we, therefore, not increasing the violent sense of injustice they feel through being classed as single persons when they have inherited these domestic responsibilities? "—[OFFICIAL REPORT, 15th May, 1963; Vol. 677, c. 1466.]
This strong argument was used in favour of a similar proposal in 1963. If it was a strong argument then, how much stronger it must be today, in view of the substantial increase in the cost of living and the higher burden of taxation


falling on these widows, not to mention the freeze on incomes.
The problems which these women face are well known and I need not detail them. Many of them are widows and must be both mother for, and breadwinner to, their children. They go out to work because they want to do the best they can for their children. This inevitably means the additional cost of employing people to look after their children. They are, therefore, bearing a big burden and if our taxation system is to be based on ability to pay, we should at least ensure that these tax allowances respond to increases in costs, increases which these widows must bear like anyone else. Yet the housekeeper allowance has not been raised since 1960.
One argument the Financial Secretary cannot use against this modest proposal is its cost—the loss in revenue that would be involved. According to figures given by the Financial Secretary, and reported in Hansard on 20th March of this year, the housekeeper allowance involves a loss in revenue of about £6 million a year. Acceptance of this proposal would mean a minute additional loss in revenue, but it would be of substantial assistance to these widows.
It should be remembered that if these widows are not able and encouraged to go out to work, they might want to be supported by the Supplementary Benefits Commission—and then the cost to the State of the cash benefits to which many of them would be entitled would be far greater than the comparatively small loss in tax revenue which the housekeeper allowance provides. I hope, for these reasons, that the Amendment will be accepted.

Mr. Maurice Macmillan: With these Amendments we turn from the old to the young. Another difference is that the Bill here seeks to remove an anomaly, in a way rejected by the Government in connection with a previous Amendment, by bringing the allowance available to widows, widowers, single women and some other taxpayers who have charge of children to the housekeeper allowance level.
The first Amendment is, so to speak, consequential on the second, in that it continues the principle of equating this

allowance, to which the subsection refers, with the housekeeper allowance, and the second Amendment seeks to raise these allowances to a higher level.
We were asked by hon. Members opposite why, in the last Amendment, we had the figure of £120. In this Amendment there are two reasons for this sum being proposed. The first is, and it has since been overtaken by events, the logical reason of keeping it in line with our previous suggestion. Secondly, it seems now, as previously, both sensible and equitable to make the two allowances correspond.
I believe that there will be no argument from the Treasury Bench against equating the child-minder allowance with the housekeeper allowance even at the higher level. I do not believe that the Financial Secretary could or would wish to produce the argument that action that was correct, right, just and equitable at the £75 level becomes wrong at a level of £120. The argument is not really about the sum of £120. In this case, the actual figure is not as important as it was in the last Amendment. The argument is really about raising the level of the housekeeper allowance from the £75 which the right hon. Lady the present Minister of Transport found so inadequate in 1963.
I do not know what would be the equivalent of the pre-war allowance of £50, if expressed in modern terms and allowing for the increase in prices, the decline in the value of money and the rise in the rate of taxation, but my hon. Friend the Member for Somerset, North (Mr. Dean) has put forward a very powerful and cogent case on grounds of equitable treatment of taxpayers, the one with another, and of the need of those who have the sole responsibility for children. That case is established beyond all doubt.
My hon. Friend also said that acceptance of this Amendment would make it easier for people not to require supplementary benefit or direct help through the social security system. Without going so far as to exceed the rules of order, I can say that what we suggest here is in line with a number of new Clauses and Amendments that we shall put forward seeking to extend the principle of self-help, as it were—pressing the Financial


Secretary and the Treasury Bench generally for allowances making it easier for people to help themselves and less likely to require help from the State.

6.45 p.m.

Dame Irene Ward: What I call the humane side of the argument has been admirably advanced by my hon. Friends, and I want just to add a further point. Most people who go out to work and pay taxation of one kind or another are to be found among those who have skills to offer to the community, and their skills are of tremendous importance to our economy. In addition, many people of this kind take a highly responsible view of their families.
If, therefore, it is in the national interest that continual pressure should be brought to bear, as it is, on those with skills to offer, it is equally right that the Government should ensure that those people should be given all possible assistance and put their skills into the common pool. This argument cannot be faulted. Therefore, though I am a little doubtful that we are likely to get the right response from the Treasury Bench, if the Government have any real appreciation of the need of the economy for these skills, in logic and in sense the Amendment ought to be accepted.
It would be quite interesting to know how many speeches have been made by members of the Government to encourage women with skills to put them to the service of the economy. Whenever one goes from the North to the South, one always hears requests to those who are trained to give their service to the State in either a national or a local government sense. If the Government do not respond favourably to these Amendments, it makes them out, if I may say so, to be perfect fools, and nowadays it is reckoned that women are not fools. They know that valid requests are being made to which many people want to respond, but they at least expect that those who are at present in charge of our economy should have enough sense to ease the path in the way suggested.
I often wonder how much information the Treasury Bench gets from the women's organisations—many of which are composed of highly qualified women —and whether Ministers bother to seek that information and advice. Even today

there are one or two very powerful organisations which, if not presided over by Ministers, have some ministerial connection. Even I sit on one or two committees now. All these bodies, which do a great deal of work in presenting facts about actual cases to the Government, would speak with a unanimous voice in support of these Amendments.
I get a little tired of arguing sound logical cases and then having arguments presented against them from the Treasury Bench. Parliament in this respect does not behave in a real way. That is why I sometimes feel the general community does not pay so much attention to Parliament as it should. I get very tired of hearing responsible people in the country making claims for the kind of support embodied in these Amendments and no echo of support being given from the Treasury Bench.
I hope that today we shall get a really constructive and helpful answer and that our Amendments will be accepted.

Mr. Philip Holland: I should like to reinforce the very powerful case put forward by my hon. Friends with a simple illustration, a "Little Willy's Guide" to the sort of thinking of the Treasury Bench. I think it quite inexcusable that there should be such a wide variation, or any variation at all, between the tax allowance applicable to a wife or to a housekeeper whom a widower has to employ to look after himself and his children.
I put the case of a married couple with a three-year-old son. In those circumstances, the husband is granted a tax allowance of £120. Then tragedy hits the family and the mother dies in childbirth, leaving the man a widower with a young child and a newborn baby. The man must immediately employ someone to look after his home and children while he goes to work. I cannot believe that in the normal case this arrangement would be less expensive or onerous than it was before tragedy struck the family. Indeed, I should think quite the contrary, because a wife who was a partner in the life she led with her husband would work to make the income stretch to the maximum benefit, particularly when he is trying to establish himself and build his career. She shops in the cheapest markets and accepts


voluntary self-denial when money is a little tight.
But a housekeeper is on a quite different footing. She has a fixed wage to provide her with a reasonable income in addition to her board and lodging and she will tend to shop in the most convenient rather than necessarily the cheapest market. Housekeeping then becomes rather more expensive. The outgoings are far less flexible from week to week in that sort of case. That is a particular burden should the widower go through a particularly difficult financial patch.
Yet a housekeeper is necessarily employed to look after him and the children and this merits an allowance of only £75 against the allowance of £120. The widower, as a result of his great personal tragedy and the unavoidable increase in his financial commitments, must then pay increased tax to the Government. This seems to be wholly inequitable. I can see the inherent danger in granting a larger tax allowance for a housekeeper than for a wife, but it seems simple justice to make the two allowances the same.
That is all we are asking for in these two modest Amendments. The case I have quoted is not so hypothetical as it might seem but is typical of many tragedies which unhappily occur. Surely the Financial Secretary can give sympathetic consideration to the correction of what is clearly a tax anomaly. I do not propose to delay the Committee. I urge him to accept these two Amendments to make this modest improvement on the grounds of justice, humanity and common sense.

Mr. Braine: I join my hon. Friends in supporting these Amendments. Here, we are seeking to help a particularly deserving and particularly vulnerable group of women. The Chancellor said in his Budget statement that widows with children who go to work experience real hardship. In a Budget in which economic circumstances did not permit him to make concessions he said that he was
acutely aware of the difficulties of many groups of our citizens. Many of them send me their budgets and at the bottom end of the incomes scale"—
these people are at the bottom end of the income scale—
there is a great deal of pinching and scraping.

He went on to say:
No praise is too high for those social workers who continue to uncover the poverty that still exists, for example, among certain families with children. We intend to find the best measures to relieve this hardship.
We waited expectantly to see what he found, but he was able only to increase the personal allowance to £75 similar to where a housekeeper is employed. That is completely inadequate. I hope that we shall not hear the argument again as we did on the last two Amendments about this or any other figure being arbitrary.
Let us consider the realities of the situation which face the kind of women we are here seeking to help. The vast majority of them are near the bottom end of the taxable income scale. Any hon. Member in touch with his constituents knows that most of them in this category in the last few years have had a considerable struggle. Any rise, however small in the cost of living, in the cost of food, of clothing or of transportation to work hits them harder than most.
The Chancellor admitted in his Budget statement that there was near hardship in this category. He said:
There is a lot of near hardship."— [OFFICIAL REPORT, 11th April, 1967; Vol. 774, c. 1009.]
The reasons for this are quite clear. This is a category of women who, despite the contribution which many with special skills could undoubtedly make if they were given special inducements, includes others who have no special skills, but who have been forced by family circumstances to go to work. When they come to my weekly "surgery" they tell me frankly that they never expected to have to go to work. Perhaps the husband was carried off by illness or accident in his early thirties, in the prime of life, and so they are forced to go to work to maintain their children, to keep the mortgage going and to keep the home together.
In short, this is a category of women who are less able than most to increase their income. As a consequence—I am measuring my words very carefully— this is a category who have borne the brunt of the rise in the cost of living which we have experienced in this country in the last two or three years. I shall not go into detail, but it is generally true—hon. Members opposite know


this—that for the first time now for many years there has begun a decline in the material standard of living of our people. Where has this been most in evidence? It is in this category of widows that one finds more evidence of hardship than in any other. Hon Members need not take that from me. The Chancellor himself concedes it. But the concession which he proposes in the Clause hardly offsets, if at all, the rise in the cost of living which these women have had to endure in the last couple of years.
7.0 p.m.
I have always believed that, when we are considering any tax relief, we should observe two principles. First, we should be prepared to give incentive to extra effort which benefits not only the taxpayer himself but the community as a whole. I give that high priority. Second, we should encourage social responsibility, the keeping together of the family. By now, surely, we can measure the cost of broken homes, of unwanted children, of unhappy and lonely old people who are cut off from their relatives.
Who is more deservting of help and encouragement in our society today, with all the forces that tend to pull the family unit apart, than the woman with children who has lost her husband by death or by desertion and who is forced to go out to work? Plainly, she is more handicapped than most. She deserves all the help we can give her to preserve her independence and to help her in the vital social task of holding her family together. The case for acting generously in this context is unanswerable, and I hope that the Financial Secretary will in a few moments concede it.

Mr. A. P. Costain: Each of my hon. Friends has dealt with the Amendment from one particular aspect, and I shall add but one further point. We have heard about the difference between the marriage allowance and the dependant's allowance. I put my appeal to the Financial Secretary in this way. What we are asking for in this Amendment would cost no more than would be met by every worker in the country contributing ld. a week—much less than to a flag day. That is all we are asking for, but it would help those who need it most.
I am concerned particularly for the children. My hon. Friends have put a powerful argument on behalf of the widow and widower. If this help cannot be given, if these people cannot afford to have a housekeeper or help in the home, it is the children who will ultimately suffer. It cannot be too much to accept a small Amendment of this kind for their sake.

Mr. MacDermot: We have had a short and interesting debate, and, as often happens when our discussions touch on the social aspects of our tax legislation, it has been a moving one, too. There have been several references to the problem of child poverty in large families. The hon. Member for Essex, South-East (Mr. Braine) gave this special attention and he quoted a passage from my right hon. Friend's Budget speech. We are not suggesting that this Clause will deal with that problem as such. I need only remind the Committee of the recent debate in which my right hon. Friend the Minister of Social Security spoke of the different possible means for dealing with that problem which are under active consideration by the Government now.
The Amendments deal with the second proposal which my right hon. Friend puts forward in the Clause, the proposal to raise—to give the technical name— what is known as the additional personal allowance to the same level as the housekeeper allowance, namely, from £40 to £75. The additional personal allowance is available to several categories of people, both men and women—in the debate attention has been directed particularly to women—who have single-handed responsibility for supporting a young child. It covers, first, widows and widowers; second, single men; third, single women, including divorced or separated wives, who are working full-time or are totally incapacitated; and, fourth, the married man whose wife is totally incapacitated throughout the tax year, and where the claimant is entitled to a child allowance but is not entitled to the £75 resident housekeeper allowance.
I remind the hon. Lady the Member for Tynemouth (Dame Irene Ward) that this proposal of the Chancellor's is itself an example of the echoes which occasionally come back from the Treasury Bencii. It has been urged upon the Treasury for several years now. The history of the


matter is this. For the classes of people who did not have a resident child minder but only a non-resident child minder, or otherwise had the task of looking after their children single-handed, there was, up to 1960, no extra allowance at all. Their cause was argued, and it was considered by the Royal Commission on Taxation, which recommended that this distinction should be abolished and that these people should have the same allowance as was available in respect of a resident housekeeper.
In 1960, the then Chancellor of the Exchequer, Mr. Heathcoat Amory, as he then was, went some of the way and gave the £40 allowance. He did not accept in full the recommendation of the Royal Commission. What my right hon. Friend has done this year is to go the whole way in following the recommendation of the Royal Commission, equating this allowance with what has been known for short as the housekeeper allowance available to similar people with the same responsibility but having a resident housekeeper to look after the child.
In moving the Amendment, the hon. Member for Somerset, North (Mr. Dean) asked why, if the Chancellor increased the one—what he called the child-minder allowance—he did not increase the housekeeper allowance. That would follow the logic of the Clause if his proposal were to restore the differential, but it is not. The hon. Gentleman accepts the equation of the two allowances, but he then wishes to raise them both. The relevant question then is: should one, at the same time as equating these allowances, raise both of them? This is a quite separate question.
I would answer, in turn, by asking another question: why these two allowances in distinction from all other personal allowances? One must relate them to the context and pattern of personal allowances as a whole. It is here that the answer to the proposal in the Amendments lies.

Mr. Dean: The Chancellor admitted in his Budget speech that there is near hardship particularly among widows who go out to work. If that admission is correct, what logic is there in increasing the child-minder allowance but leaving the housekeeper allowance where it is?

Mr. MacDermot: May I substitute the word "asserted" for "admitted"? The hon. Gentleman seems to lay responsibility for this at the door of the Chancellor. He asserted that the problem existed, but, as I said at the outset, it is a problem which goes much wider. My right hon. Friend is unable, within the overall Budget judgment which he has formed this year, to assist all the people whom he would like to assist, and he has picked out what he considers to be the most deserving, being impressed by the argument, first, on the dependent relative allowance for the single woman, with which we have just been dealing, and, second, by this class in carrying out the recommendation of the Royal Commission. But the proposal in the Amendments, if accepted, would seriously distort the pattern of personal allowances. For example, the total personal allowances for a widow with a child under 11 would be £455, as against £340 for a childless married couple.
The hon. Member for Carlton (Mr. Holland), in particular, urged us to base the housekeeper allowance and the child-minder allowance on the analogy of the allowance which is given to the married man as compared with that given to the single man. Again, I suggest that this is a false comparison. The effect of the Clause as it stands is not ungenerous. A widow with a child under 11 will get an allowance of £220 for herself, the ordinary £115 for the child, and an extra £75, whether or not there is a child-minder to look after the child. The effect of this is to give, in effect, a child allowance of £190, instead of £115, for the first child in these cases.
It is difficult to see any justification for giving an extra £120 instead of £75. It is true that this £120 is the difference between the married man's allowance and the single person's allowance, but the married man's allowance is an allowance for two people. The hon. Gentleman asked us to compare it with the case of a widow employing a resident housekeeper to look after her child. In that case the housekeeper herself is a separate taxpayer and receives her own personal allowance. That is the distinction between that case and the case of the husband who supports a wife who is not earning an income herself.

Mr. Holland: I do not think that that is a direct parallel. Does not the housekeeper receive much of her reward in kind? Therefore, she is in a very low income bracket and probably does not earn enough money to make the difference between paying tax and not paying tax; whereas a wife may be out at work earning a substantial amount, if she is a professional woman, and thus be in a much higher tax bracket. Such a wife would benefit more from the personal allowance than would a housekeeper in receipt of a small wage and, in addition, board and lodging.

Mr. MacDermot: Resident housekeepers tend to earn rather more substantial incomes these days; and, if they are kept out of the Income Tax bracket, it is simply because they have personal allowances of their own. If a widow were given an extra allowance equal to the extra allowance which the married man gets for his wife, it would be going too far and would distort the pattern of these allowances.
I was asked what the cost of accepting these Amendments would be. The estimate I am given for the extra cost for this year is £2<£ million and in a full year £2f million. That is a very substantial increase on the cost of the amendments proposed in the Clause, but it is not on that ground primarily that I advise the Committee to reject them. It is because the proposals in the Clause rightly meet the two most difficult and most deserving cases without distorting the general pattern of personal allowances.

Mr. Maurice Macmillan: I made the point that the £120 was perhaps not critical to this argument. To what level must prices rise before the Government will regard it as a deserving case to increase an allowance which was considered to be inadequate in 1963?

Mr. MacDermot: I omitted to deal with the point about the price level. No Chancellor of the Exchequer, to my knowledge, has ever accepted the proposition that all personal allowances must keep pace with changes in the value of money. That certainly is not what has happened. If this matter is to be considered and reviewed, it must be looked at in the context of many other changes which have taken place.
The hon. Member for Somerset, North (Mr. Dean) quoted a passage from a speech made by my right hon. Friend the Minister of Transport when she was in opposition. In arguing this point she said that this allowance was £50 before the war. Since then there have been enormous changes in many other ways, apart from the general question of the standard of living. There have been differences in social security benefit, in child allowances, in family allowances, and so on. We must look at this question in the context of the whole social security system and the general level of personal allowances in deciding what is the fair level at which to pitch a particular allowance at a particular time.

7.15 p.m.

Sir Harmar Nicholls: I found one aspect of the Financial Secretary's reply a little disturbing from the point of view of back benchers. He advanced as his first argument—it follows that he considered it to be a strong one— the proposition that the Amendment cannot be considered because it upsets the neatness of dealing with personal allowances. He said that, if we deal with this allowance, we must automatically deal with all the others. That does not follow. Whatever Government are in power, back benchers must let the Treasury Bench know that Parliament has a say in these matters.
The Chancellor has decided that this problem is one which ought to be dealt with. That is why he has included this change in the Clause. The hon. and learned Gentleman claimed, with some justice, that although Mr. Heathcoat Amory, a few years ago, only partly accepted the advice of the Royal Commission, the present Chancellor has gone further and has given the extra money to come up to the Royal Commission's recommendation.
If the Chancellor has selected this part of the personal allowances because he believes that there is special merit in it, must Parliament accept at once his decision as to what the figure should be? Is not the point of bringing the proposal before the Committee that the Government shall share the minds of members of the Committee? If the Chancellor has decided that this personal allowance deserves the time of Parliament, it is right, whether it is neat or not neat, that


back benchers should bring their experience to bear on the matter.
I believe that my hon. Friends have made their case. We are not criticising the Chancellor. We are not saying that there is something wicked about the Chancellor because he has not included the figure of £120 instead of £75. Indeed, to some extent we commend him for going along the right road. The Royal Commission said so. Now my hon. Friends have said so. I am certain that the whole Committee would say so.
The argument of my hon. Friends that this allowance should fit in with the wife allowance of £120 is unanswerable. The figures given by the Financial Secretary to show that if the Amendment were carried the allowances would then be higher than those enjoyed by a married couple did not carry much weight. The Chancellor, by selecting this personal allowance for upgrading, has admitted that it is a special case.
The Committee is now considering it on behalf of Parliament. It is saying that the figure put into the Bill by the Chancellor is not the correct one. My hon. Friends have produced strong evidence to show that the figure in the Amendment is better

than the figure in the Clause. I hope that the Financial Secretary will forget neatness and recognise the importance of this personal allowance, as admitted by the Chancellor himself; and, having done that, pay heed to the point of view which has been advanced by hon. Members on behalf of their constituencies.

Mr, Dean: The Financial Secretary has very largely relied on what he calls the distortion of the allowances as a whole which the Amendment would bring about. As is well known, that is invariably the last refuge of a Treasury Minister who cannot think up a respectable argument against an Amendment. If that argument is to be taken seriously, one cannot increase any allowances without increasing allowances all across the board. Yet we have already had the Government making modest increases to two allowances in the Bill, and that is welcome. The hon. and learned Gentleman used a totally negative argument, and I hope that my hon. Friends will support me in the Division Lobby.

Question put, That "seventy-five" stand part of the Clause: —

The Committee divided: Ayes 203, Noes 138.

Division No. 350.]
AYES
[7.23 p.m.


Abse, Leo
Concannon, J. D.
Foot, Sir Dingle (Ipswich)


Allaun, Frank (Salford, E.)
Craddock, George (Bradford, S.)
Ford, Ben


Alldritt, Walter
Crawshaw, Richard
Forrester, John


Allen, Scholefield
Cronin, John
Fowler, Gerry


Anderson, Donald
Crossman, Rt. Hn. Richard
Galpern, Sir Myer


Archer, Peter
Cullen, Mrs. Alice
Gardner, Tony


Armstrong, Ernest
Davidson, Arthur (Accrington)
Ginsburg, David


Atkins, Ronald (Preston, N.)
Davies, G. Elfed (Rhondda, E.)
Gordon Walker, Rt. Hn. P. C.


Atkinson, Norman (Tottenham)
Davies, Ednyfed Hudson (Conway)
G our lay, Harry


Barnett, Joel
Davies, Harold (Leek)
Gray, Dr. Hugh (Yarmouth)


Baxter, William
Davies, Ifor (Gower)
Greenwood, Rt. Hn. Anthony


Beaney, Alan
Davies, S. O. (Merthyr)
Griffiths, David (Rother Valley)


Bellenger, Rt. Hn. F. J.
Delargy, Hugh
Griffiths, Rt. Hn. James (Llanelly)


Benoe, Cyril
Dell, Edmund
Hamilton, James (Bothwell)


Benn, Rt. Hn. Anthony Wedgwood
Dewar, Donald
Hamilton, William (Fife, W.)


Binns, John
Diamond, Rt. Hn. John
Hannan, William


Blackburn, F.
Dickens, James
Harper, Joseph


Blenkinsop, Arthur
Dobson, Ray
Harrison, Walter (Wakefield)


Booth, Albert
Doig, Peter
Hart, Mrs. Judith


Bowden, Rt. Hn. Herbert
Donnelly, Desmond
Haseldine, Norman


Braddock, Mrs. E. M.
Driberg, Tom
Hazell, Bert


Bradley, Tom
Dunn, James A.
Heffer, Eric S.


Brooks, Edwin
Dunwoody, Mrs. Gwyneth (Exeter)
Henig, Stanley


Broughton, Dr. A. D. D.
Dunwoody, Dr. John (F'th &amp; C'b'e)
Herbison, Rt. Hn. Margaret


Brown, Hugh D. (G'gow, Provan)
Eadie, Alex
Hobden, Dennis (Brighton, K'town)


Buchan, Norman
Edwards, Rt. Hn. Ness (Caerphilly)
Hooley, Frank


Buchanan-Richard (G'gow, Sp'burn)
Edwards, William (Merioneth)
Horner, John


Butler, Herbert (Hackney, CO
Ennals, David
Houghton, Rt. Hn. Douglas


Callaghan, Rt. Hn. Jams
Ensor, David
Howie, W.


Cant, R. B.
Evans, Albert (Islington, S.w.)
Huckfield, L.


Carmichael, Neil
Faulds, Andrew
Hughes, Emrys (Ayrshire, S.)


Castle, Rt. Hn. Barbara
Finch, Harold
Hughes, Roy (Newport)


Chapman, Donald
Fitch, Alan (Wigan)
Hunter, Adam


Coe, Denis
Fletcher, Raymond (Ilkeston)
Irvine, A. J. (Edge Hill)


Coleman, Donald
Fletcher, Ted (Darlington)
Jackson, Colin (B'h'se &amp; Spenb'gh)



Foley, Maurice
Jackson, Peter M. (High Peak)




Jones, Dan (Burnley)
Mitchell, R. C. (S'th'pton, Test)
Rowlands, E. (Cardiff, N.)


Jones, J. Idwal (Wrexham)
Molloy, William
Sheldon, Robert


Jones, T. Alec (Rhondda, West)
Morgan, Elystan (Cardiganshire)
Shore, Peter (Stepney)


Kelley, Richard
Morris, Alfred (Wythenshawe)
Silkin, Rt. Hn. John (Deptford)


Kerr, Russell (Feltham)
Morris, Charles, R. (Openshaw)
Silkin, Hn. S. C. (Dulwich)


Lawson, George
Moyle, Roland
Silverman, Julius (Aston)


Leadbitter, Ted
Newens, Stan
Slater, Joseph


Lestor, Miss Joan
Noel-Baker, Francis (Swindon)
Snow, Julian


Lewis, Arthur (W. Ham, N.)
Noel-Baker, Rt.Hn.Philip(Derby,S.)
Spriggs, Leslie


Lewis, Ron (Carlisle)
Ogden, Eric
Steele, Thomas (Dunbartonshire,W.)


Loughlin Charles
O'Malley, Brian
Symonds, J. B.


Lyon, Alexander W. (York)
Oram, Albert E.
Taverne, Dick


Lyons, Edward (Bradford, E.)
Orbach, Maurice
Tinn, James


McBride, Neil
Orme, Stanley
Tuck, Raphael


McCann, John
Padley, Walter
Varley, Eric G.


MacColl, James
Page, Derek (King's Lynn)
Wainwright, Edwin (Dearne Valley)


MacDermot, Niall
Paget, R. T.
Walden, Brian (All Saints)


Macdonald, A. H.
Pannell, Rt. Hn. Charles
Watkins, David (Consett)


McGuire, Michael
Park, Trevor
Wellbeloved, James


Mackenzie, Gregor (Rutherglen)
Pearson, Arthur (Pontypridd)
Whitlock, William


Mackie, John
Peart, Rt. Hn. Fred
Williams, Alan (Swansea, W.)


Maclennan, Robert
Pentland, Norman
Williams, Clifford (Abertillery)


MacMillan, Malcolm (Western Isles;
Perry, George H. (Nottingham, S.)
Wiliams, Mrs. Shirley (Hitchin)


McMillan, Tom (Glasgow, C.)
Price, Christopher (Perry Bar)
Willis, George (Edinburgh, E.)


MacPherson, Malcolm
Price, Thomas (Westhoughton)
Wilson, William (Coventry, S.)


Mallalieu,J.P.W.(Huddersfield,E.)
Price, William (Rugby)
Winnick, David


Manuel, Archie
Probert, Arthur
Winterbottom, R. E.


Mapp, Charles
Rankin, John
Woof, Robert


Mason, Roy
Rees, Merlyn
Yates, Victor


Mayhew, Christopher
Rhodes, Geoffrey



Millan, Bruce
Robinson,Rt.Hn.Kenneth(St.P'c'as)
TELLERS FOR THE AYES:


Miller, Dr. M. S.
Robinson, W. O. J. (Walth'stow, E.)
Mr. Harold Walker and


Milne, Edward (Biyth)
Rose, Paul
Mr. Ioan L. Evans.



Ross, Rt. Hn. William





NOES


Alison, Michael (Barkston Ash)
Hall-Davis, A. G. F.
Nicholls, Sir Harmar


Allason, James (Hemel Hempstead)
Hamilton, Marquee of (Fermanagh)
Nott, John


Awdry, Daniel
Harris, Reader (Heston)
Onslow, Cranley


Baker, W. H. K.
Harrison, Col. Sir Harwood (Eye)
Osborn, John (Hallam)


Bell, Ronald
Harvey, Sir Arthur Vere
Osborne, Sir Cyril (Louth)


Bennett, Sir Frederic (Torquay)
Harvie Anderson, Miss
Page, Graham (Crosby)


Berry, Hn. Anthony
Hawkins, Paul
Page, John (Harrow, W.)


Bessell, Peter
Heseltine, Michael
Percival, Ian


Biffen, John
Higgins, Terence L.
Pounder, Rafton


Birch, Rt. Hn. Nigel
Hiley, Joseph
Prior, J. M. L.


Boseom, Sir Clive
Hill, J. E. B.
Pym, Francis


Braine, Bernard
Hirst, Geoffrey
Ramsden, Rt. Hn. James


Brewis, John
Holland, Philip
Ronton, Rt. Hn. Sir David


Brinton, Sir Tatton
Hordern, Peter
Ridley, Hn. Nicholas


Brown, Sir Edward (Bath)
Hornby, Richard
Rossi, Hugh (Hornsey)


Bruce-Gardyne, J.
Hunt, John
Russell, Sir Ronald


Buchanan-Smith, Alick(Angus,N&amp;M)
Irvine, Bryant Godman (Rye)
Scott, Nicholas


Buck, Antony (Colchester)
Jenkin, Patrick (Woodford)
Sinclair, Sir George


Bullus, Sir Erie
Jopling, Michael
Smith, John


Campbell, Gordon
Kerby, Capt. Henry
Stainton, Keith


Carr, Rt. Hn. Robert
King, Evelyn (Dorset, S.)
Steel, David (Roxburgh)


Chichester-clark, R.
Kirk, Peter
Stodart, Anthony


Cooke, Robert
Knight, Mrs. Jill
Taylor, Sir Charles (Eastbourne)


Costain, A. P.
Lambton, Viscount
Taylor, Frank (Moss Side)


Crosthwaite-Eyre, Sir Oliver
Lewis, Kenneth (Rutland)
Thatcher, Mrs. Margaret


Dance, James
Lloyd, Ian (P'tsm'th, Langstone)
Thorpe, Rt. Hn. Jeremy


Davidson, James(Aberdeenshire, W.)
McAdden, Sir Stephen
Tilney, John


Dean, Paul (Somerset. N.)
Macleod, Rt. Hn. lain
Van Straubenzee, W. R.


Deedes, Rt. Hn. W. F. (Ashford)
McMaster, Stanley
Vaughan-Morgan, Rt. Hn. Sir John


Dodds-Parker, Douglas
Macmillan, Maurice (Farnham)
Wainwright, Richard (Colne Valley)


Doughty, Charles
Maddan, Martin
Walker, Peter (Worcester)


Eden, Sir John
Maginnis, John E.
Ward, Dame Irene


Elliott,R.W.(N'ctle-upon-Tyne,N.)
Maude, Angus
Weatherill, Bernard


Errington, Sir Eric
Mawby, Ray
Webster, David


Eyre, Reginald
Maxwell-Hyslop, R. J.
Whitelaw, Rt. Hn. William


Fortescue, Tim
Maydon, Lt.-Cmdr. S. L. C.
Wills, Sir Gerald (Bridgwater)


Galbraith, Hon. T. C.
Mills, Peter (Torrington)
Wilson, Geoffrey (Truro)


Gibson-Watt, David
Mills, Stratton (Belfast, N.)
Winstanley, Dr. M. P.


Gilmour, Sir John (Fife, E.)
Miscampbell, Norman
Wolrige-Gordon, Patrick


Glover, Sir Douglas
Monro, Hector
Wood, Rt. Hn. Richard


Gower, Raymond
More, Jasper
Worsley, Marcus


Grant, Anthony
Morgan, Geraint (Denbigh)
Wright, Esmond


Grant-Ferris, R.
Morrison, Charles (Devizes)
Wylie, N. R.


Gresham Cooke, R.
Mott-Radclyffe, Sir Charles
Younger, Hn. George


Grimond, Rt. Hn. J.
Munro-Lucas-Tooth, Sir Hugh
TELLERS FOR THE NOES:


Gurden, Harold
Murton, Oscar
Mr. A. Royle and Mr. Kitson.


Hall, John (Wycombe)
Nabarro, Sir Gerald



Question proposed, That the Clause stand part of the Bill.

7.30 p.m.

Dame Irene Ward: I want to add one or two comments because I could not get into the debate after the Financial Secretary had replied to the Amendment. He made an extraordinary observation. He said that the Chancellor could not do anything in this case because no Chancellors before him had ever taken the action we were proposing. That is a most extraordinary argument. I am sure that it was not one he made during the General Election, because, if I remember rightly, at that time the finances of the country were to be entirely altered.

The Chairman: Order. The hon. Lady cannot reopen the debate on the Amendment.

Dame Irene Ward: I do not want to reopen it, Sir Eric. I only want to say that, if the Chancellor of the Exchequer can never make an alteration in anything because none of his predecessors has ever done it, he has frozen himself entirely for the rest of his life at the Treasury.
It is a very important point of democracy not to allow a Chancellor to say that he cannot do something because no other Chancellor has ever done it before. It is an extraordinary suggestion. I do not want to follow it up in detail, but I must put on record that I do not want to be in a Parliament where a Minister says that he cannot ever do anything because no one has ever done it before. I am sure that the hon. and learned Gentleman could not have meant it, but it was the most silly observation I have ever heard from the Treasury bench, and I have heard many.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 17.—(RELIEF WHERE COPYRIGHT SOLD AFTER TEN YEARS OR MORE.)

Question proposed, That the Clause stand part of the Bill.

Sir Edward Boyle: I hope that the Committee will forgive me if I say something about this Clause which arises directly out of a new Clause which I sought leave to introduce during the proceedings of last year's Finance Act. When I heard the Chancellor's Budget statement in April, I could not help feeling that I was perhaps one of the few Members who could

reasonably say that they got something out of the Budget. On Report stage of last year's Act, I moved a new Clause whose object was, under certain circumscribed conditions, to free from liability to tax an outright sale by an author assigning copyright in an existing work.
On that occasion, the Financial Secretary made a not altogether unsympathetic reply. He pointed out the difficulties of the new Clause, talked about the difficulty of giving to a particular category of artist a special advantage we do not give to others, and went on to say:
It seems … that there is a closer analogy in the case of the scientific inventor who produces an invention and obtains patent rights. … He has certain tax conditions which are more helpful than those which are available for writers and other creative artists. I think there are spread provisions over a period of about six years.
… it seems that if we were to look further into the field and were prepared to swallow the principle of treating copyright as an income-producing asset one should perhaps look at the analogy of the treatment of patent rights." —[OFFICIAL REPORT, 12th July, 1966; Vol. 731. c. 1247.]
I think that that is exactly the suggestion that the Chancellor has carried out in this Clause.
In Clause 17, there is relief in cases where copyright is sold after ten years or more, and in these cases
Except where the copyright or interest is assigned or granted for a period of less than six years, the amount of the payment shall for income tax purposes be treated as becoming receivable in six instalments at yearly intervals…
Many people had hoped that the Chancellor would be able to go a little further than this but none the less it would be churlish of me not to recognise that the Government have done something to respond to the suggestion I made to the House on Report stage of last year's Act, and which was supported by the hon. Member for Manchester, Cheetham (Mr. Harold Lever), who is now a junior Minister at the Department of Economic Affairs.
I notice that the Government, I think rightly, have not adopted the proposal I made that this provision should apply only to those over 50 years of age. I thought that the hon. and learned Gentleman was on rather strong ground last year in criticising that aspect of my Clause. I notice that the Chancellor has


kept the ten-year limitation even though the hon. and learned Gentleman seemed critical of it last year.
None the less, I would like to say that I think that this is the first time for a long time that the House of Commons has done something for authors. We are putting authors of whatever works in something of the same position as the scientist who has made an invention and acquires patent rights. I have an interest to declare here as one connected with publishing. I believe we often forget the difficulty of authors in our present-day society.
In particular, I recall the excellent point made last year by my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod). One can think of authors who have suddenly caught the popular mood with one work which has been highly successful but have not reached the same heights of popular appeal again. My right hon. Friend quoted the good example of "Journey's End", and one can think of others in opera and other art forms. It can happen that an author can strike a particular success with one single work.
A concession such as the Government are now making is only what is due to authors. I hope that on a future occasion we can extend the principle to a longer period, both for scientists and inventors and for authors. I hope that the Committee will forgive me for delaying it a few moments on this subject but it is one on which it is right to comment. I hope that we will be able to come back to this again in a later year and make a still more generous provision for those affected by the Clause.

Mr. A. H. Macdonald: Subsection (6) of the Clause refers to the position that will arise when
… the profession or vocation is permanently discontinued (otherwise than on death) …
Could my hon. and learned Friend explain how it is to be determined when the profession is permanently discontinued? Without wearying the Committee with many examples, I would remind it of the case of E. M. Forster, a distinguished literary figure. I believe that I am right in saying that his novels were written several years ago, although he continues to hold a very high place in literature.

Would it be argued that his professional activity as an author was discontinued some time ago? How is it to be determined that professional activity is finally and permanently discontinued?
I ask this because the flow of inspiration of an author or any other artist is not something that can be turned on or off like a tap. It flows almost, one might think, by chance and it is not always easy to say that the flow of inspiration is finally and permanently dried up. How is it to be determined when it has come to an end? Indeed, why is this provision necessary at all? Why do we have to have it if literary or musical activity has come to an end?

Sir Harmar Nicholls: I want to place on record the special claim under the Clause that the theatre, particularly the musical theatre, has. The examples given so far have been those of the author or the scientist, but this country has to recognise the growing importance of the place of the theatre in the world.
The entertainment industry is big, probably one of the biggest industries. Television round the world means that the supply of musicals and plays to feed it will be a great source of income to those who can provide the material. I see no reason why this country should not become the centre of this kind of inventive thought in the theatre, particularly in musicals.
I want to draw the attention of the Committee especially to this aspect because it seems to be overlooked now. All the examples given have been of authors and scientists. But the composer who gives thought to musicals and the straight playwright have a greater problem than authors in many ways. If one writes a book, but cannot impress the publishers to print it, one can get it printed oneself and risk whether it will have any appeal once on the market. It is not cheap to do that, but it may be within the range of people who generally write books. However, a composer of a musical play cannot do that. He cannot think of putting on a musical play without thinking in terms of £30,000, £40,000 or £50,000 in order to dress it, pay the musicians and get the rehearsals under way.
When we consider the justice of the Clause we should keep in mind the necessity to encourage the people who write


plays and compose music and who have to produce much of the work before getting the producers or the impressarios to put them on. On the rare occasions that they do catch the eye and interest of an impressario and where they are a success, they deserve having it spread over a good many years before handing over some of the results of their work in taxes to the Treasury.
I think that, from now on, when we are thinking in terms of inventors and composers we have to keep in mind the people who write musical plays and make theatrical productions, not because it is good entertainment and pleases people, but because it is going to be big business. I foresee the time when the income which will come to this country for encouraging these people will be a bigger foreign currency earner than motor cars or anything else. Television entertainment goes round the rest of the world. Material for this medium is needed 12 and 13 hours a day and the people producing it will be great foreign currency earners. This is capable of being as big a foreign currency earner for the country which gets into the lead as Los Angeles was for America in the days when films were on the up and up. Los Angeles was, and still is, a great source of income to America, and there is every reason to believe that we can become the equivalent of Los Angeles in the producing of plays and musicals which can earn money which will make future Chancellors very happy.

Mr. MacDermot: I thank the right hon. Member for Birmingham, Handsworth (Sir E. Boyle) for his generous remarks welcoming the Clause. The authors and other artists who would benefit should be greatly indebted to the right hon. Gentleman who, as he said, raised this matter first on Report last year. It is not necessary to seek to explain the Clause, because it has been clearly summarised by the right hon. Gentleman. He made clear, when moving the Clause last year, that what he and the Society of Authors were primarily prepared to meet was the case of the less well off artist who may have a few copyrights to sell and perhaps, in the closing years of his life, wanted to realise a capital sum which, though not very large, if taxed in a single year would be reduced out of all proportion, making

it not worth while trying to raise the sum. That was the case that it was designed to meet and these proposals are primarily designed to assist persons in that category.
As the right hon. Gentleman has said, we have not tried to limit it to the author who is over 50 years of age. That would produce its own problems. We were persuaded that this should be available on the disposal of copright after a 10-year period. We talk about it mainly in terms of authors, and it is primarily authors who will benefit, but, as the hon. Member for Peterborough (Sir Harmar Nicholls) has pointed out, there are other creative artists who produce work in which they have copyright and who will benefit.
My hon. Friend the Member for Chislehurst (Mr. Macdonald) asked questions about subsection (6). The first question was how and when it would be determined whether or not an artist had discontinued his professional activities. The only answer I can give is that that is a question of fact which he will have to establish with the Income Tax inspector, because on discontinuance he would cease to be taxable as a person acting in the course of his profession. In the event of dispute the matter would be determined on appeal in the ordinary way.
My hon. Friend's next question was why was it necessary to make any provision of this kind. The reason is that if one does not, then there is the difficulty that, having ceased to carry on the profession of authorship, unless some special provision were made there would be no means of levying the proper tax on the instalments which had been deferred under these spreading provisions. Accordingly, this subsection provides that in such a case the outstanding instalments are to be taken into account as if they had been receivable on the last occasion before discontinuance on which an instalment became due, unless the author elects to have his tax liabilities adjusted as if the assignment of the copyright had been for a period equal to that between the date when the first instalment came in hand and the date of the discontinuance; in other words, to narrow the spread up to the time when he discontinues carrying on his profession.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 18.—(CHARGE OF CORPORATION TAX FOR FINANCIAL YEAR 1966.)

Mr. Terence L. Higgins: I beg to move Amendment No. 27, in page 21, line 27, to leave out '40' and to insert '37½'.
The Committee will appreciate that this is an extremely important Amendment which seeks to alter the entry in the Finance Bill as it now stands which would set the rate of Corporation Tax at 40 per cent. to a figure of 37½ per cent. Whether this change might be described as a reduction in the rate of taxes on companies I leave the Committee to decide during the course of the debate, but it is at least arguable that this Amendment would merely remove an increase in the Corporation Tax which was imposed last year for reasons which the Government themselves admitted to be transitory.
The crucial question which has arisen in the last two Finance Bills has been the level of the new system of taxation, Corporation Tax and Schedule F, and what their rates will have to be to produce the same revenue as under the old system of Income Tax and Profits Tax.
The Committee will recall that in our debates last year there was considerable dispute about this matter. In the 1965 debates it was generally agreed that the rate of Corporation Tax which would be equivalent in the terms I have described would be about 35 per cent. In the debates last year the Chief Secretary advanced two arguments as to why it should be more than that amount. The first was that there had been some increase in dividends in the period 1965–66 as a result of forestalling; there would be a corresponding fall in dividends in 1966–67 and it was, therefore, necessary to offset this by raising the rate of Corporation Tax. The second point he made was that the new Schedule F would effectively only be collected over 11 months of the year. It would yield, therefore, only roughly 11/12ths of the total amount involved in a full year.
In the debate last year my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) intervened to some considerable effect and I trust that the Committee will excuse me if I quote from those debates to make the argument clear. When one comes back to it after a break it is a fairly complicated matter. In

essence, my right hon. Friend said that the estimate of Corporation Tax was £1,000 million a year and that if we reduced the rate from 40 per cent. to 37½ per cent. it would cost roughly £62½ million. He then asked the Chief Secretary what would be the amount which Schedule F would yield.
The Chief Secretary replied that there was no reason why he should not give the figure and added:
… £575 million represents eleven-twelfths, having regard to the period of collection, of a full year's revenue. If we therefore add one-eleventh to get to twelve-twelfths, we are adding about £52 million—in round figures, £50 million. Fifty million pounds is approximately 5 per cent. of £1,000 million. If we add on 5 per cent., we are by this one item alone more than fully accounting for the difference between the right hon. Gentleman's figure of 36 or 36½ per cent. and the figure of 40 per cent. In short, this one item alone fully accounts for the difference.
My right hon. Friend, in reply to the debate, pointed out that the right hon. Gentleman had made what he described as a schoolboy howler. My right hon. Friend said:
The right hon. Gentleman was talking about two quite different things. He said that because £50 million, the eleven-twelfths argument, is one-twentieth or 5 per cent. of £1,000, that alone explains the difference between the old figure and the new. That is quite untrue. It is a different 5 per cent., as anyone can see.
The increase from 35 per cent. to 40 per cent. is an increase of one-seventh, or 14 per cent What the Chief Secretary has done is to commit an error into which a primary schoolboy would not have fallen. He has taken the 5 per cent. of the £1,000 and equated that with a 14 per cent. increase from 35 to 40 per cent"—[OFFICIAL REPORT, 21st June, 1966; Vol. 730, c. 308–14.]
I am sorry that of necessity those quotations had to be a little lengthy, but the point which we need to make is that after my right hon. Friend's intervention in the debate, we then proceeded immediately to a Division. It was subsequently raised on Third Reading, but again the Chancellor of the Exchequer who wound up the debate, did not give a satisfactory reply stating any real reason for fixing the rate of Corporation Tax at 40 per cent. It was not satisfactory for us to have an explanation from the Chief Secretary which failed to explain why the rate should have been fixed at 40 per cent. and for him simply to brush the matter aside. I hope that this evening we shall have a satisfactory explanation.
Lack of an explanation does not increase confidence in the Government. If there was a genuine error, the right hon. Gentleman should say so and should give us what he believes to be the real reasons for the 14 per cent. increase, because that is extremely relevant to the Amendment this evening. I hope that we shall have a clear and straightforward answer.
The reason given last year for increasing the rate from that which has been expected to 40 per cent. were essentially transitory. They were, first, the question of forestalling from one year to another and, secondly, the fact that the revenue from the tax would be collected for only eleven-twelfths of the year. Clearly, those two reasons do not apply to a long period. They are no reason for continuing to maintain the level of Corporation Tax at 40 per cent. indefinitely. One would have thought that if this year the burden of taxation on companies as a whole was to be normal—in some sense —the rate would be reduced. We believe the right figure is 37½ per cent.
The relevant issue which now arises is whether there is, anyway, a case for reducing the level of Corporation Tax. The Chief Secretary made an interesting speech on the Second Reading of this year's Finance Bill when he sought to show that the trend of the burden of taxation on companies had been decreasing steadily over a considerable period. To back up what was in essence the heart of his Second Reading speech, he quoted from a series of figures which had been conveniently produced on the previous day in answer to a Question for Written Answer from someone on the Government side of the House.
One point which needs to be made about that Written Answer is that the information which it contained and which was given considerable publicity the next day in The Times of 3rd May was readily available, with one or two minor statistical corrections, in the ordinary National Income Blue Book. None the less, the figures appeared on the day before the right hon. Gentleman's speech and he made great play with them to show that the burden of taxation on businesses had been declining. Those figures failed to sustain the weight of argument which the right hon. Gentleman put on them, and they are open to at least three serious objections.
The figures which he quoted were essentially taxes on the incomes of companies as a percentage of trading profits, but that is in no sense a measure of the actual burden of taxation on companies, and it is that which he needs to establish to make his main point. The first objection to the figures is that they took no account of the fact that the tax on company profits cannot be seen in isolation, but must take account also of tax paid on company dividends. That tax ought to be included if one is to get a true picture.
We all know that the right hon. Gentleman is very anxious—and he has put this forward as a virtue of the present Corporation Tax—that companies should plough back rather than distribute their profits. This has consistently been a bone of contention between the two sides of the Committee. We believe that we are more likely to get growth in the economy if a higher rather than a lower percentage of profits is distributed through the market to firms which can best use them rather than creating the situation which my right hon. Friend the Leader of the Opposition once described as survival of the fattest. However, whatever the right hon. Gentleman's view may be about that, he cannot seriously maintain that the additional tax on distributed profits should not be included in the actual tax burden falling upon companies.
Secondly, he has not taken account of the fact that it is not simply the tax on the incomes of companies which is relevant to the burden of taxation. One must also take into account what other taxes they pay, for example, Selective Employment Tax. Therefore, he should modify his view of what he believes is the great decline of the tax burden on companies between 1950 and 1966.
The third reason is that the right hon. Gentleman's figures—again, conveniently —did not include allowance for depreciation and, of course, the amount of depreciation which companies pay has tended to go up both as investment has risen and as capital intensity has increased. Therefore, while the gross profit may have been maintained, the net profit after depreciation has tended to diminish. This, again, means that the tendency which the right hon. Gentleman is seeking to prove has, in fact, been less than he says.

Mr. Diamond: By how much would the hon. Gentleman think that net profits have tended to diminish?

Mr. Higgins: That would be much easier to answer if the right hon. Gentleman could me some reliable figures for depreciation, but at all events it cannot be denied that the direction has been that which I have suggested. If the right hon. Gentleman has any figures, I should be glad to hear what they are.
There is a need for us to clarify the classifications which we use when discussing these matters.
8.0 p.m.
Last night, there was some dispute between my hon. Friend the Member for Finchley (Mrs. Thatcher), and the right hon. Gentleman about whether taxes were direct or indirect. For the purpose of debate it would be helpful if we could produce a rather broader classification. We have at least four possible categories. One is direct tax on companies, such as Corporation Tax, another is a direct tax on the individual, such as individual Income Tax. There is a third group of tax on goods and services, and, fourthly, there is a group of taxes on industrial raw materials and other inputs.

The Chairman: I do not want to interrupt the hon. Gentleman, but on this Amendment we are discussing only the rate of Corporation Tax.

Mr. Higgins: I fully appreciate that. The point I am seeking to make is that there is a case for reducing this rate because when we break down the figures in the categories to which I have referred it is the case that we need to shift the burden of taxation from Corporation Tax, and by reducing the rate on to other forms of taxation on companies. We would transfer, for example, more of the cost of social security payments from the direct tax of Corporation Tax to a payroll form of tax. I believe that there is a strong case for altering the basic pattern of taxation in this direction.
Whatever the validity of the right hon. Gentleman's figures, and we would concede that there has been some reduction in the burden of taxation on companies over the period, even on the basis of his figures, this is surely a wonderful testimony, as my hon. Friend the Member for Finchley pointed out in a letter to The Times, to past Conservative Govern-

ments. In that period we had a situation in which we had higher economic growth with lower taxes and better social security, which is in marked contrast to the situation that we now have.
The other point which needs to be made is that while the tax burden on companies has been getting less—and the right hon. Gentleman almost seems to want to take credit for the reduction in tax which took place under a Conservative Government—it is quite clear from the figures which he quoted that taxes on income paid by companies are now going up. There is every indication that, for the reasons which I have suggested, the actual burden of Corporation Tax on companies is likely to increase.
If we look at the Budget documents we find that the Budget estimate for 1966–67 for Corporation Tax was £1,000 million. The out-turn was higher at £1,034 million. The estimates for this year was £1,260 million. After a long decline over a period of time from 1950 to 1966, albeit not so steep as the right hon. Gentleman has suggested, the burden of taxation, even on the right hon. Gentleman's narrow definition, is now increasing. This is something which we on this side of the Committee do not believe is likely to lead to growth in the economy or a reasonable economic policy. There is a case for reducing the burden of direct taxation on companies, and it is for this reason that we think it right to put forward this Amendment.
I would like to deal with one or two points about the general economic situation and the way in which reducing taxes on companies is likely to bring about the objectives which the Chancellor says he seeks to achieve. We have been definitely told that he does not want to bring the economy out of the present depressed state by consumer reflation. It has to be either an export-led boom or an investment-led boom. But it is perfectly clear that the trend of the economy is very much one in which investment is not likely to be increased.
We believe that there is a very strong case for altering taxation in the way that I have described. Clearly, the extent to which it is reflationary would depend on what happens to the other variables. As the Committee will well know, we feel that there is scope for considerable


economy in various items of budget expenditure, whether it be Selective Employment Tax premium, the cost of the Land Commission, or something else. The extent to which it is refiationary can be varied, but there is no doubt that a reduction in our Corporation Tax would encourage investment, and this is something which the Chancellor is lamentably failing to do.
We also feel that this is particularly relevant, because there has been a change in businessmen's capital budgeting decisions. A "Neddy" report, a short time ago, pointed out that businessmen tended to look at the rate of return before tax, but it is clear now that they are tending to look at it after tax. For this reason a change in Corporation Tax is likely to be more effective in encouraging investment than it would have been a few years ago.
Finally, we believe that the essential thing for this country is not, in terms of the most used cliche, to concentrate on the size of the cake and how it should be split up. The essential thing is that the cake should get bigger. It is the basic philosophy of hon. Gentlemen opposite, who feel that the golden egg which the industrial chicken must continue to lay is in some sense tax revenue, whereas we are quite convinced that it is industrial prosperity, without which we cannot hope to get growth. I believe that it is right that the burden of taxation on companies should be lowered, it certainly should not be increased, which would be the effect if we were to accept the Government's figure in the Finance Bill as it now stands.

Mr. Richard Wainwright: The Liberal Amendment, No. 28, which the Chair ruled must be discussed with the Conservative Amendment, flows from an interview published in The Guardian on 2nd March in which my right hon. Friend the Leader of the Liberal Party gave his hopes for the then forthcoming Budget to Mr. William Davis, the City Editor of The Guardian. He made it quite clear that, in a year which we knew to be one of limited manoeuvre, our hope and our top priority was for a reduction of taxation on business success. Unfortunately, our hopes were entirely dashed.
Speaking of private industry in his Budget statement, the Chancellor said:
… I have no intention of killing the goose that lays the golden eggs."—[OFFICIAL REPORT, 11th April, 1967; Vol. 744, c. 989.]
What a signal to send out to hard-pressed industry:
Thou shalt not kill; but need'st not strive Officiously to keep alive."!
It may be that the Chancellor was not sufficiently pressed, because what I took to the definitive statement of hopes from the Conservative side for the Budget, which appeared in the Financial Times on 5th April, over the name of the right hon. Gentleman the Member for Enfield, West (Mr. Iain Macleod), sprang from a history of the Conservatives' last Administration, during which tax on company profits, the old Profits Tax, was increased by no less than 50 per cent., and the standard rate of Income Tax was not reduced at all.
This was not an encouraging background. It may be that the present Chancellor felt that he could get away with it if the Conservative Opposition were already so heavily compromised. For our part, we felt that the Government, and we gave them credit, and to some extent support, at the time, had set the stage for just such a reduction as we proposed. After all, with much pain and sweat, company taxation had already been separated, usefully, we think, from personal taxation, mainly, one would suppose—certainly it was our view—so that business tax could be adjusted when the situation required it, as we think it now does, without at the same time inevitably making changes in the rate of personal taxation. Again the stage was set, because the system of investment grants had removed the old difficulty that any reduction in the general level of business tax automatically reduced the value of Government assistance to those firms which invest. As to the risk of encouraging higher dividends, the climate surely is so much against increased distributions—in recent times we have had lower dividends rather than increased dividends—that the risk should not have weighed seriously with the Chancellor of the Exchequer.
Finally, on the point about setting the stage for a reduction in Corporation Tax, that governor of our fiscal fate, the Inland Revenue Staff Federation, could scarcely


object to a reduction to 38 per cent., although it might have reservations about the ½ per cent. which the Conservative Party Amendment seeks to introduce into the computation. The stage was set, not for a reduction which would have meant a very great deal in terms of money when spread over the whole of British industry, but which would have been a signal to efficient and successful British industry that the Government appreciated success in the private sector and were prepared, to the extent that opportunity offered, to allow it its reward.
A reduction in the rate of Corporation Tax is essentially a selective measure. We on the Liberal Bench had hoped from certain small signs in recent months that the Government had learned the enormous benefit of being selective in their treatment of the economy. Again, our hopes have been disappointed, not least during last weekend when, speaking at Leicester, the Chancellor of the Exchequer is reported in the Press to have said, among other things:
During the next 12 months there will be a gentle but progressive improvement in the standard of life of every family in the country.
This is an impossible promise and, in our view, an undesirable one also. What we want to see is those who are in great and proved need and particularly also those who are shown to be contributing to the economic recovery of the country, enjoying an improvement in their standards or resources. We are bitterly disappointed that the Government appear to have retreated from their policy of selectivity, which began to give us some encouragement at the turn of the year. A reduction in Corporation Tax would be an encouragement to those who make profits, whether by winning export orders at the right price and fulfilling them at the right date, or by overcoming all the very great difficulties of coping with an increasingly competitive home market.
As the Chief Secretary is to reply to the debate, I feel that I must take a moment to deal with objections of the sort which I fancy he will take particular delight in bringing forward. It may be said that the rate of Corporation Tax cannot be discussed in terms of an incentive because the profits on which the tax is paid are made before the rate is announced. I hope that the right hon. Gentleman will not use this argument,

because surely it is clear that what matters to business is the Government's indication of the climate. In any case, we have not reached the point at which the tax is actually paid before the rate is announced, and a reduction in the burden on companies' liquidity would undoubtedly be an encouragement.
The other argument which I anticipate the Chief Secretary will bring forward is that of comparability with other countries. It has been difficult for a Liberal even to sit still during the recent hours in which the problem of direct taxation in this country has been discussed in terms of comparability with other countries. It is not, and never has been, good enough for this country simply to say that it is not taxing its business concerns any more heavily than most of its competitors. A country which lives by exports must have, generally speaking, a lower rate of direct taxation. If it must raise the revenue, the extra revenue should be raised by tax on costs rather than on profits.
8.15 p.m.
I do not suggest that the modest reduction in Corporation Tax which we propose would of itself push up investment in the private sector. Businessmen will not invest until they can see over the horizon the increased demand for their products. But for the Chancellor of the Exchequer to hoist a flag of encouragement, even on a modest scale, would make directors more alert to spot the possibilities of increased demand and more ingenious in planning their future investment. Encouragement of this kind would have the advantage that by encouraging the more enterprising firms to press ahead, even if only a little earlier, with their investment, we should avoid the very great risk which overhangs the economy that when the private sector starts to expand its investment it will do so on such a great scale that there will be a collision with public expenditure, which cannot be stopped quickly in order to make way for expansion in the private sector.
A reduction of this kind could have a definite effect on the "brain drain" to the United States for tax reasons and for other reasons which the Government appear to forget—sunshine and surf, scenery and an easier life in other parts of the world, even though tax rates there may


be fairly high. Whatever might have been said yesterday about the effect or non-effect of extra cash in the pocket of the executive, I firmly believe that executives in this country are greatly influenced by the industrial and financial climate in which they have to work and the atmosphere in their companies. If their companies could feel that at last they were getting encouragement from the Government and the fact that changing times were on the way were signalled to them in a modest fashion, I believe that those whom we can least afford to lose— the most outward-looking and public-spirited of the clever people—would take the hint and would be more likely to stay at home.
I hope that if there is to be a degree of reflation, as I believe there should be, its first fruits will go to those business concerns which are successfully jumping over the enormous hurdles, both in the shape of obstacles to foreign trade and the difficulties of trade at home, because they deserve it.

Mr. A. G. F. Hall-Davis: I regard the Amendment as being most helpful to the Chancellor of the Exchequer, because it is a move to bring some logic into the policy which he appeared to be following when he announced the introduction of Corporation Tax and the change from the previous system. I do not know whether it is in the recollection of other hon. Members, but I believe that it was on Derby Day, two years ago, that we discussed Corporation Tax in Committee on the Finance Bill. Since then, the form shown by the private sector of industry in the investment stakes has been consistently disappointing. It is time that the Chancellor of the Exchequer adjusted the handicap and reduced the weights.
Although that may be a somewhat light-hearted simile, I say very seriously that I am extremely sorry that the Chief Secretary and not the Chancellor of the Exchequer is here to listen to and reply to the debate.
I believe that the Chancellor does not fully understand the effects of Corporation Tax. He may understand its mechanics, and may follow the increase and the yields, but I believe that he is not yet seized of the effect of the tax

upon the thinking and attitude of industry. If he did understand it he would never have fixed a rate as high as 40 per cent. for the initial charge. The result of doing so is that industry has suffered from all the possible disadvantages of the tax without being able to enjoy any of the benefits which the Chancellor claimed for it on its introduction, or without even being able to test whether its benefits exist.
I quickly remind the right hon. Gentleman of some of the disadvantages of the tax which would be mitigated, although only marginally, by a reduction. First, it has made it almost impossible for many companies to secure a worthwhile return on new equity, and it is the raising of new equity capital for rapid expansion with which we should be primarily concerned, and where Corporation Tax has its most damaging effect. A company has to earn 14 per cent. on an investment to cover a dividend return of 6 per cent. and provide a reasonable margin of 1·4 times the cover. No wonder many companies shelve investment projects, when they have to have that sort of return merely to maintain their existing market rate.
The hon. Member may look quizzical, but he knows as well as I do that in almost every boardroom resort to equity capital-raising has become an action of last resort. If one can, one resorts to loan capital, and often raises equity capital today only to increase the borrowing power to raise loan capital on a trust deed or loan or debenture stock. These are the not easily measured disadvantages of the tax which must have an effect in reducing the capacity of industry to function flexibly and efficiently.

Mr. Sheldon: The hon. Member quoted 14 per cent. return on investment as giving only 6 per cent. On the basis of a 40 per cent. Corporation Tax my arithmetic shows the return as being 8·4 per cent.

Mr. Hall-Davis: As usual, the hon. Member is extremely accurate in his arithmetic, but he must bear in mind that any company or board of directors which is considering raising additional finance will not do so if this diminishes the cover for the dividend and reduces the price-earnings ratio of the shares and leads to a fall in the value of the stock on the


market. Unless one provides cover as well as meeting the crude cost of servicing the capital, one is not enhancing the circumstances of one's shareholders: one is very likely diminishing them. That is the effect of Corporation Tax.
It has raised the cost of loan capital by 1 per cent. and made it necessary to secure a return on investment about 3 per cent. higher, if financed by equity capital, than was necessary before. There is no wonder, under these circumstances, that apart from other financial considerations private sector investment is falling.
These are primarily the effects of the tax itself, and are only marginal in the matter of the rate. But the Chancellor has failed to appreciate—I have never heard him give any figures showing that he appreciates it—that for the majority of companies variations in the rate of Corporation Tax produce accentuated effects in the level of retained profits. Today, most companies are extremely reluctant to reduce equity dividend. Time and again it has been shown that this operates not only against the interests of the shareholders but against the interests of the employees.
Therefore, in effect, variations in the rate of Corporation Tax are borne entirely by retained profits—certainly, in the first instance—both as regards the proportion of profit which is considered available for redemption and also as regards the proportion of profit which is used to service the equity dividend.
Therefore, in practice a variation of about 2½ per cent. in the rate of Corporation Tax will, for many companies, mean a variation of 12 per cent. in the level of regained profits. This is particularly important when profit rates are tending to fall.
This brings me to the events of 1965–66. I am glad that the Chief Secretary is with us this evening. The Chancellor commended the Corporation Tax primarily on the basis that it would lead to an increase in the financing of industry from retained profits, would impose a check upon any inclination to increase the level of dividends, and provide an inducement to restraint in their payment. Like my hon. Friends, I believe this to be a mistaken policy. The point is, however, that the Chancellor never even gave it a chance to be tested.
With Corporation Tax at 35 per cent., and the continuation of investment allowances over the whole field of industry, there was a real chance that companies would have reconsidered their financial policy, or, at any rate, examined it to see whether there was a case for planning their progress so as to rely increasingly upon retained profits. But by fixing Corporation Tax at 40 per cent. and, at the same time, for much of industry eliminating investment allowances and not replacing them with investment grants, the Chancellor made it absolutely certain that any tendency for industry to rely increasingly upon retained profits as a result of the introduction of this tax would be completely destroyed.
The right hon. Gentleman not only killed the policy towards self-financing which he had propounded; even more important, by fixing the rate at 40 per cent. he gravely damaged the confidence of industry in the general support which it could expect from this Government. In this, the Chief Secretary played his part. The Committee should remember that for 12 months industry played a guessing game about the rate of Corporation Tax. Those who listened to the Chief Secretary in his explanations over and over again of what the likely effect of Corporation Tax would be provided, in accounts prepared before 4th April, 1966, for a rate of 35 per cent., and those who were cynics and listened to the Chancellor's statement that 40 per cent. would be the maximum rate, and said to themselves,
"Under the present Government it will be the maximum rate the whole time", provided for a rate of 40 per cent Those who were cautious and prudent thought that they had made adequate provision at 37½ per cent.
I support my hon. Friend's request for some elucidation on why it should be the case that the tax was introduced at a rate of 40 per cent. I, for one, will not pay much heed to arguments which the Chief Secretary advances after listening to so many reasoned statements based on a rate of 35 per cent. It was a blow to British industrial confidence which is still reflected in the general activity and investment of industry today.
It was all the more extraordinary because the Chancellor took this step in a Budget when he had an opportunity to


establish his reputation and give confidence to industry. It was the Budget in which he was introducing the Selective Employment Tax, which is a bad tax in many aspects. But, as he was introducing it, he had in his hands an opportunity, because by not paying the premiums to manufacturing industry and by using the revenue that he thus saved to reduce Corporation Tax, he could have established Corporation Tax at a mathematical level of 36 per cent. But it would not have involved his stretching his generosity far to have fixed it at 35 per cent.
For the variety of reasons which I have tried to adduce, and as the hon. Member for Colne Valley (Mr. Richard Wainwright) said, there can be no better tonic for industry than for the Government first to reduce the tax to 37½ per cent., as proposed in the Amendment, and follow that switftly with a reduction to 35 per cent. I believe that there are certain levels in all taxation which are critical and, while we have had little opportunity to test it, I believe that the critical area for Corporation Tax may lie between 35 and 40 per cent.

8.30 p.m.

Mr. Sheldon: The hon. Member for Worthing (Mr. Higgins) started his speech by reminding us of some of the lengthy arguments which we carried on last year. I am against an excess of arguments outside the same financial year, but I would point out one of them, and that is the amount which was realised from Corporation Tax. The right hon. Member for Enfield, West (Mr. Iain Macleod) assumed, as many did at that time, that the estimate for Corporation Tax in the Budget of £1,000 million was a guess. Its out-turn at £1,034 million may have been the result of fortunate guessing or an accurate estimate about which we were unaware.
The hon. Member for Morecambe and Lonsdale (Mr. Hall-Davis) mentioned the need to have a 1·4 times cover for any new investment. There is not a great deal separating us on that, because we know that the present Corporation Tax and Income Tax at 41< per cent. is equivalent to the tax paid on distribution as it would be with Income Tax at 41< per cent., and 15 per cent. profits if the dividend was 1·5 times. So the difference

between 1·5 and 1·4 is not something about which we should be terribly excited, although it is of marginal significance.

Mr. Hall-Davis: It is a somewhat involved argument, but if the hon. Gentleman examines the basis of calculating cover gross for Corporation Tax and cover net after tax for the previous system, I do not think that a 1·5 per cent. cover will be found to be the equivalent of a 1·4 per cent. cover today.

Mr. Sheldon: The hon. Gentleman means 1·4 times and 1·5 times, of course.

Mr. Hall-Davis: Yes, I am sorry.

Mr. Sheldon: I think that the hon. Gentleman will find that my calculations in this respect are correct.
The main problem facing many companies at present is to maintain their dividends at a time when profits are under some pressure. The only way in which dividends can be maintained is by increasing profits. The alternative is for a company to be prepared to let the dividend go below what it has been over perhaps a long period of time. Unfortunately, a large number of companies regard their ordinary dividend as something in the nature of a fixed charge and that, if they let it go, their shares will be considered unreliable in some way. That can have certain bad effects if they accept the need to mask the effect of good and bad years and play for safety in the way which I am sorry to see a number of firms behaving.
If Corporation Tax is increased, as a result their dividends ought to be reduced, and I am prepared to see them reduced and take whatever action possible by way of publicity and so on to get a rather better share buying public who understand the reason for it. I should also prefer to see dividends reflecting current profits. Although, in a period of economic difficulty, one must ask for some restraint, this is the only tenable basis over a long period of time.
I do not think that the charge of Corporation Tax should worry us too much in this respect. If we accept that Corporation Tax is a means of raising revenue and indicating the economic climate when it is not good, this should be reflected in the amount of dividends


distributed, and when the economic climate is better this, too, should be reflected in the nature of the dividends.

Mr. John Biffen: I support the Amendment on four counts. First, I dislike the principle of Corporation Tax, and therefore any reduction is a partial alleviation of something which I regard as an evil. I have no doubt that the principle of Corporation Tax springs from an assumption that it is desirable more easily to identify corporate taxation, and from this I believe will inexorably flow the consequence that there will be increasing emphasis upon corporate taxation.
That is no particularly startling observation on my part. The promise was documented by the articles of the right hon. Member for Sowerby (Mr. Houghton) when he was in opposition, and the story of Corporation Tax so far indicates that it is likely to be a one-way ratchet movement. This is what undoubtedly concerns many in the business community, and the fact that we have demonstrated our hostility to that approach by tabling an Amendment to reduce the rate to 37½ per cent. gives me much pleasure.
I confess that in a perfectionist world I would prefer to see a reduction in corporate taxation to come on distributed profits rather than on retained profits, and therefore in the ideal world it is not quite so much the reduction of Corporation Tax which concerns me, but the rate of tax on distributed profits. None the less, operating within the disciplines within which we find ourselves, I am delighted to have the opportunity to vote for a reduction in the rate of Corporation Tax itself.
My second reason for supporting the Amendment is the belief that the Committee should demonstrate its concern to treat profits somewhat more generously. I am prompted to this view particularly by some recent studies conducted by Professor Merrett and Mr. John Whittaker. The Financial Times of 27th May said:
The effectiveness of the present 'severe' incomes policy is questioned by Professor A. J. Merrett and Mr. John Whittaker, both of the London Graduate School of Business Studies, in the June issue of Accountancy …
They comment that on the basis of a consistent net-of-all taxes series of profit

figures for 1956–66 the return on capital in manufacturing in the United Kingdom was 5·9 per cent,.in 1966 compared with 6·77 per cent. the previous year, the lowest figure since pre-war.
That is a startling revelation, and one which should give us all cause to think furiously, particularly those who believe that profit is the motive power of a free enterprise economy.
I believe in a free enterprise economy. That belief, probably more than any other, accounts for my being on this side of the Committee. I understand that many do not believe in a free enterprise economy but regard profits as some index of efficiency. It is more than that to me. It is the motive part of a free enterprise economy, and once we have rates of corporate taxation, as we now have, which are conducing to the situation which has been described by Professor Merrett and Mr. Whittaker, we see in danger the very principles which we cherish. That is good reason for supporting the Amendment.
The third reason why I support this proposal is because the whole argument of corporate taxation is often presented as though the rate of Corporation Tax and the level of investment grants have some relation to each other. It is an argument which I have seen associated with the hon. Member for Ashton-under-Lyne (Mr. Sheldon), and I believe that it was contained in the advice which he preferred to the Chancellor before the Budget. It is the argument that, generally speaking, one could increase the rate of Corporation Tax and thereby to some extent help finance higher rates of investment grant. This is a harmful argument because it proceeds from an analysis of the relationship of physical investment to our economic performance which I do not accept; and by forcing a Division on an Amendment which seeks to reduce the rate of Corporation Tax, my hon. Friends and I will, at least by implication, be challenging the arguments and premises of the hon. Member for Ashton-under-Lyne.
The fourth reason why I support the Amendment is because at this time the Committee is concerned to see, whatever measures of tax changes are proposed, that the economy will, in the next 12 to 18 months, proceed without a repetition of the crises which have attended periods


of reflation in the past. In these circumstances, the Committee should be prudent before making calls for cuts in taxation which might be deemed to be the green light for a speedy and premature reflation. I hope, therefore, that we will be guided to some extent by the kind of advice offered by Mr. Leslie O'Brien, speaking as the Governor of the Bank of England, earlier this week.
The Amendment is the sort of move which could help to restore and sustain business confidence without necessarily introducing some of the harmful consequences of premature reflation.

Mr. Michael Alison: I enthusiastically support the Amendment and will pursue my support along the lines followed by my hon. Friend the Member for Morecambe and Lonsdale (Mr. Hall-Davis), who expertly and authoritatively demonstrated, as a company director, what it is like to be at the receiving end of what the Chief Secretary is doing. I particularly want to refer to gearing, to which my hon. Friend referred; that is, the proportion of debt in company new issues.
I remind the Chief Secretary of a Financial Times table of sensational revelation. It showed the extraordinary increase in the proportion of debt capital as between, say, 1962, when it was under 50 per cent. of new issues, and 1965, when it had gone up to 90 per cent. This was a direct result of Section 52 of the Finance Act—the benefit which accrues to companies by having a prior charge in the shape of an interest or annuity payment which can be set off against the tax liability.
This is a real disservice at this stage of our economic affairs, because it seems that this change in gearing—it is a change in what one might describe as the "league tables", in which Britain has hitherto had a rather advantageous part in the sense that our capital market had extraordinary opportunities for the raising of risk capital compared with other European countries—and this tendency, under the impact of Corporation Tax, has meant the risk capital market becoming increasingly depressed.
8.45 p.m.
The most serious result is precisely in the direction of risk taking and innovation,

upon which the future of our industrial economy depends. I would argue that it is not accidental, not unconnected, that this country should in the past have had perhaps a most highly developed risk capital market and, at the same time, should have shown the most extraordinary capacity for producing innovations, and new ideas and new developments in industry, which a great many industrial countries have copied even if we may not have fully developed them.
These new inventions, ideas and projects have to a great degree come from these small British Isles when there has been a high risk capital market, and the danger in future will be to play safe in industrial investment. Instead of introducing a new idea, or a new kind of technique or a new piece of machinery in an industrial process, the whole tendency will be to reproduce the existing one. The tendency will be that if one wants to extend or expand output one will not produce something new which might go wrong, even though it might bring a good reward, but will merely produce one more of the same thing in order to be sure of a steady return on investment, even if one does not get anything sensational. That must be to our disadvantage.
The remarkable thing is the tendency of the nationalised industries to try to persuade the Government to let them introduce in their capital structure some sort of risk of capital and so have a cushion against innovation and the launching of new projects on which the profits, through low in the short term, may be highly profitable later. They seek the cushion of equity capital. If one's gearing is high and one has increasing interest charges, one cannot launch these initially profitless undertakings which may in the long run be extremely profitable. That is the worst thing to inflict on our economy when facing some of the most competitive expanding and thrusting economies in Europe and Asia.
The other aspect is that the tendency to boost the fixed interest market and depress the risk-taking capital market will make real difficulties for the Government, let alone for the private sector. The pressure on the fixed interest market will become very serious, particularly under the Government's own proposal for floating stock for the huge block of capital


needed for the gas industry. The Industrial Reorganisation Corporation and everyone else seems to be going for fixed interest securities. The Government will not get their paper sold, so they will raise a floating debt and so promote inflation and a generally unsatisfactory situation of liquidity. Under the Government's proposals everything is going in precisely the wrong direction, and it is no wonder that confidence is lacking and that industry is stagnant. This Amendment needs the utmost support.

Mr. Diamond: Perhaps I should start from the Opposition back benches and work towards the Front Bench. I start with the hon. Member for Colne Valley (Mr. Richard Wainwright), who, in his typical fashion, took a swipe with his left at the Government and followed it up with a tremendous right at the Opposition. He gave the Opposition a real clouting for their behaviour towards company taxation and challenged their right to criticise in any sense at all. I go with the hon. Gentleman, because he went so far as to say that he accepted the general proposition of separating company taxation from individual taxation, and had a modicum of support for the general principle of the Corporation Tax.
In spite of everything said elsewhere, I think that is now becoming the position of the Official Opposition. Much as they may wish to criticise the tax, may wish to see changes in it, basically it is accepted as part of our tax system.) certainly believe that it is justified and that it will be on the Statute Book for many years to come.
We are not considering the principle of Corporation Tax, but merely the rate. The rate has been criticised (a) that it is excessive in comparison wih other countries and is contributing to the brain drain and (b) that it is excessive in relation to the weight of company taxation which existed under what one might call the old system of Income Tax and Profits Tax which finished up at 56< per cent.
The hon. Member for Oswestry (Mr. Biffen), who always makes short, interesting speeches, revealed today one of the reasons why he sits on the benches opposite. I have often wondered. I welcome some of the things which he said. But I do not wish to do him damage and will leave this aspect immediately. I think

that he quoted the United States and said that this was one of the causes of the brain drain to the United States.

Mr. Biffen: No.

Mr. Diamond: Perhaps it was another hon. Member.
One of the causes of the brain drain to the United States was said to be the high level of taxation here compared with the level there, the level of Corporation Tax. I thought that the hon. Member for Oswestry made reference to the high rate of Corporation Tax in comparison with that in other countries.

Mr. Biffen: I do not recollect having mentioned the rate of Corporation Tax that applies in this country in relation to the rate of Corporation Tax in any other country.

Mr. Diamond: Then I am clearly mistaken and am attributing to the hon. Member something which was said by another hon. Member in the debate.
More than one hon. Member has referred to the brain drain and comparatively high rates of Corporation Tax. So I imagine that it is my first duty to inform the Committee of the comparative rates of Corporation Tax in other countries, and particularly in the United States. It is said that people leave here to go to the United States where there are lower rates of Corporation Tax. Our rate is 40. per cent. and in the United States it is 48 per cent. In the Netherlands it is 48 per cent., in France 50 per cent., in Canada 50 per cent., in Luxembourg 40 per cent., in Germany 51 per cent. on undistributed profits and 15 per cent.— which works out at 23½ per cent. because of the complexity of the calculation—on distributed profits.
So the first thing I can say, which most people know whether they admit it or not, is that 40 per cent. by international comparison is distinctly on the low side. One cannot accept that kind of argument in relation to the brain drain. Corporation Tax is of course, a tremendous incentive to investment and to ploughing back compared with the old system. As we have said many times, the amount left at the point of paying Corporation Tax is very much greater at the rate of 40 per cent. than the amount which was left under the old system. Under the old


system, it was 43¾ per cent., and £43 15s. would have been left and under the new system 60 per cent., a difference of £16 5s. on every £100 or £3 15s. on net retained profits, which is an increase of £16 5s., or an increase of between 35 per cent. and 40 per cent. That is a very substantial increase on retained profits and an encouragement to investing and ploughing back.
Then the argument goes, notwithstanding all this—that it is a lightweight by international standards and an encouragement to investment by comparison with the old system—that the rate is a heavy rate by comparison with what would have arisen had we continued on the old system of Income Tax and Profits Tax totalling 56< per cent. I repeat that this is not so. I will go over the ground again, as there apparently still seems to be an unwillingness to accept the figures with which I have been supplied.
I have given the Opposition the best figures we can produce, both last year and this year, because last year, when the right hon. Member for Barnet (Mr. Maudling) intervened at the very point of time when I was giving the information and asked, "What about the following year?", I said that I would try to give the information for the following year. I have, therefore, given it again for this year.
Let me go over the ground. Last year, in principle, it was stated—I repeat it— that, in a normal year, converting the old system to the new would have produced, as the tax was then shaped, a Corporation Tax rate of 35 per cent. That shape was altered so as to reduce the burden. There was transitional relief of various kinds. Although we could not work this out accurately, it put on about 2 per cent.—between the 35 per cent. and the 40 per cent. in the normal full year.
Then the question arose: what would be the equivalent rate in the first year of Corporation Tax for the yield coming into the Revenue from the money paid out by companies in this first year, which was a very special year, to equalise the yield which would have arisen under the old system? At the time, I said that it was more than 40 per cent. It would have been more than 40 per cent. I have since revised that, in the light of

the information we now have this year. An estimate was made, with the best knowledge and calculation that we could make, which showed at that time that it was likely to be more than 40 per cent. to produce an equivalent return for the first year of Corporation Tax. But I have made it clear that, in fact, the figure has turned out to have been something over 45 per cent.
Let me make it quite clear. The rate charged was 40 per cent. The rate that should have been charged to produce the same yield in that first year of Corporation Tax as would have been produced under the combined system of Income Tax and Profits Tax was over 45 per cent. I have said all this. I repeat it all.
I come now to the one element of confusion which the hon. Member for Worthing (Mr. Higgins) and the right hon. Member for Enfield, West (Mr. Iain Macleod) have relied on—I will not say ad nauseam, but time and time again, namely, my schoolboy howler. I am greatly touched by the attention which the right hon. Gentleman pays to my mistakes. I will explain it in a moment. If, after speaking from the Dispatch Box as often and as late as I do, or as early in the morning as I do, on these complicated matters, I can get away with one schoolboy howler in three years, it is a good record.
However, let me make it quite clear that I made a mistake. It is easy to make a mistake when one is at this Dispatch Box. There is nothing easier than to make a slip of the feet when one is standing upon one's tongue. That is very easy to do. That is what happened on that occasion.
I was asked for some information. I, in the normal way, saw to it that it was produced to me. It was produced behind my back on a piece of paper in the normal way. Just as I was rising, it was thrust into my hand. I gave the information, accurately provided by those who advised me. Unfortunately, I then went on, too hurriedly and immediately, to add an interpretation and I gave the figure of 5 per cent.
9.0 p.m.
That was my schoolboy howler. It was my interpretation. There was nothing on the piece of paper about 5 per


cent. It was my mistake, and I take full responsibility for it. But it did not affect the statement in the slightest. It merely gave the right hon. Gentleman an opportunity for referring, in his typically courteous way, to my schoolboy howler time and time again, and it gave him the trouble, I am sorry to say, of writing a letter to The Times just to tell its readers that, lo and behold, the Chief Secretary to the Treasury had made a mistake.
The short point is that it would have been necessary to introduce a rate of over 45 per cent. to produce the same revenue for the first year of Corporation Tax as would have been produced by a continuation of the old rates of Income Tax and Profits Tax. A series of items goes into the calculation. The Revenue did its best to anticipate and forecast them correctly. It did not get everything right, and the figure was worked out somewhat conservatively. In fact, the argument was much stronger all the time than the argument which we were at that stage putting to the Committee.

Mr. Higgins: Will the right hon. Gentleman say whether he means that it was the equivalent rate at that moment of time, or it simply happens that that would have been the figure in the light of subsequent events, when actual profits had been considerably depressed by the Government's policy?

Mr. Diamond: It is the application of the rate of Income Tax and Profits Tax to the profits which would come in for assessment this year, that is, profits of a previous period, sometimes going back a little way. That is to be compared with a rate of 40 per cent., and, as I have said, it would have been a rate of over 45 per cent.
The hon. Gentleman is just beginning to think of some of the complications which arise when one attempts to give this information. There are many complications. This is why, to begin with, we did not wish to trouble the Committee too much with the details. But, at all events, looking at it from this end, one can now say with assurance that it would have been over 45 per cent.
I have said, and I repeat, that that was the first year, a special year. This year, to get the equivalent yield as would have arisen on profits coming in for

assessment, under Income Tax and Profits Tax at the previous rates, would have necessitated a Corporation Tax rate, as the Corporation Tax law stands at the moment, of 40 per cent., and 40 per cent. is the rate for which we are providing. It follows that I reject completely the whole of the hon. Gentleman's argument.

Mr. Higgins: The point I was trying to make is that the equivalent rate would be the rate which produced the same amount at a given level of profits. Otherwise, to sustain the right hon. Gentleman's argument—if I am not mistaken —every time there was buoyancy in the revenue he would have to reduce the rate of Corporation Tax.

Mr. Diamond: Let me repeat it, in case it is not clear. I am comparing like with like. I am giving the figure which would be required, in terms of the rate of Corporation Tax under the Clause and the Amendment which we are discussing which would produce the same yield on profits coming up for taxation if we were still under the previous system of Income Tax and Profits Tax at the last ruling rate totalling 56< per cent. I cannot be much clearer than that. I hope that I shall be excused from having to repeat it again.

Mr. Wainwright: Does not the right hon. Gentleman agree that, in the context of this argument, it is high time that the grisly level of company taxation under the late Tory Administration was entirely forgotten?

Mr. Diamond: I was not proposing entirely to forget it, because I was going to move on to the next point—the continuing reduction in the burden of taxation falling on companies.
I have now dealt with the argument of the brain drain and the international comparison of the level of 40 per cent. I have dealt with the comparison between our present rate of 40 per cent. and what the yield would have been under the old system, and I have shown that there has not been one penny rise. I now turn to the other figures which I gave during an earlier speech and which I reaffirmed, and which the hon. Gentleman has not said one word to challenge. Those figures are, of course, the gross trading profits, and I intervened because I wanted to know whether he had made an attempt


to calculate the total depreciation or capital allowances. We have no means of doing that; there are no figures available for it.
I must therefore give the best figures I can, as I always do to the Committee, and the best figures I can give are the gross figures, which show this continuing trend of such a marked character that, no matter what allowances one makes for error in the figures or the calculation, which I cannot concede were considerable, the story emerges as plain as a bell. It does not matter whether one looks at it in terms of the share of the gross national product at factor cost going in company taxation or whether one looks upon it more accurately in terms of the proportion of company taxation in relation to company gross profits. Whichever way one looks at it, one sees a most marked regular reduction—not precisely each year but if one groups the years together it is a marked reduction as plain as a pikestaff.
I therefore repeat that the burden on company taxation has reduced every few years and has been continually and steadily reducing since the early 1950s. The level of Corporation Tax is no different from what it would have

been had we had the old system. It is less in this country than in other comparable countries, and the system of Corporation Tax is keyed to encourage more investment than the old system.

In these circumstances there is no justification whatsoever for a further reduction in the rate, a reduction which, as proposed by the Opposition, would cost about £85 million in a full year. I can only advise the Committee to reject the Amendment.

Mr. Higgins: We are now left in a position where we do not have any explanation why the rate was increased last year because it was based on errors. We appreciate the Chief Secretary's admission that he made a mistake, and we can forgive him, given the admittedly heavy burden he bears. Whether the taxpayer can forgive him for not having an explanation why it went up is another matter.
In these circumstances, I hope that my hon. Friends will register their views in favour of the Amendment, which we feel is important, by voting on it.

Question put, That "40" stand part of the Clause: —

The Committee divided: Ayes 199, Noes 123.

Division No. 351.]
AYES
[9.10 p.m.


Allaun. Frank (Salford, E.)
Corbet, Mrs. Freda
Forrester, John


Alldritt, Walter
Craddock, George (Bradford, S.)
Fowler, Gerry


Allen, Scholefield
Crawshaw, Richard
Fraser, John (Norwood)


Anderson, Donald
Cronin, John
Galpern, Sir Myer


Archer, Peter
Cullen, Mrs. Alice
Gardner, Tony


Armstrong, Ernest
Davidson, Arthur (Accrington)
Garrett, W. E.


Atkins, Ronald (Preston, N.)
Davies, G. Elfred (Rhondda, E.)
Ginsburg, David


Atkinson, Norman (Tottenham)
Davies, Ednyfed Hudson (Conway)
Cordon Walker, Rt. Hn. P. C.


Bagier, Cordon A. T.
Davies, Harold (Leek)
Gourlay, Harry


Barnett, Joel
Davies, Ifor (Gower)
Gray, Dr. Hugh (Yarmouth)


Baxter, William
Davies, S. O. (Merthyr)
Greenwood, Rt. Hn. Anthony


Beaney, Alan
Delargy, Hugh
Griffiths, Rt. Hn. James (L[...]anelly)


Bellenger, Rt. Hn. F. J.
Dell, Edmund
Hamilton, James (Bothwell)


Bence, Cyril
Dewar, Donald
Hamilton, William (Fife, W.)


Benn, Rt. Hn. Anthony Wedgwood
Diamond, Rt. Hn. John
Hannan, William


Binns, John
Dobson, Ray
Harper, Joseph


Blackburn, F.
Doig, Peter
Harrison, Walter (Wakefield)


Blenkinsop, Arthur
Driberg, Tom
Hart, Mrs. Judith


Booth, Albert
Dunn, James A.
Haseldine, Norman


Bowden, Rt. Hn. Herbert
Dunwoody, Mrs. Gwyneth (Exeter)
Hazell, Bert


Braddock, Mrs. E, M.
Dunwoody, Dr. John (F'th &amp; C'b'e)
Hoffer, Eric S.


Bradley, Tom
Eadie, Alex
Henig, Stanley


Bray, Dr. Jeremy
Edwards, Rt. Hn. Ness (Caerphilly)
Herbison, Rt. Hn. Margaret


Brooks, Edwin
Edwards, William (Merioneth)
Hobden, Dennis (Brighton, K'town)


Broughton, Dr. A. D. D.
Ennals, David
Hooley, Frank


Brown, Hugh D. (G'gow, Provan)
Ensor, David
Horner, John


Buchan, Norman
Evans, Ioan L. (Birm'h'm, Yardley)
Houghton, Rt. Hn. Douglas


Buchanan, Richard (G'gow, Sp'burn)
Faulds, Andrew
Howie, W.


Callaghan, Rt. Hn. James
Finch, Harold
Huckfield, L.


Cant, R. B.
Fletcher, Raymond (Ilkeston)
Hughes, Emrys (Ayrshire, 8.)


Carmichael, Neil
Fletcher, Ted (Darlington)
Hughes, Roy (Newport)


Chapman, Donald
Foley, Maurice
Hunter, Adam


Coe, Denis
Foot, Sir Dingle (Ipswich)
Irvine, A. J. (Edge Hill)


Coleman, Donald
Ford, Ben
Jackson, Colin (B'h'se &amp; Sp'nb'gh)


Concannon, J. D.






Jackson, Peter M. (High Peak)
Molloy, William
Ross, Rt. Hn. William


Jones, Dan (Burnley)
Morgan, Elystan (Cardiganshire)
Rowlands, E. (Cardiff, N.)


Jones, J. Idwal (Wrexham)
Morris, Alfred (Wythenshawe)
Sheldon, Robert


Jones, T. Alec (Rhondda, West)
Morris, Charles R. (Openshaw)
Shore, Peter (Stepney)


Kelley, Richard
Moyle, Roland
Short, Mrs. Renee(W'hampton,N.E.)


Lawson, George
Newens, Stan
Silkan, Hn. S. C. (Dulwich)


Leadbitter, Ted
Noel-Baker, Francis (Swindon)
Silverman, Julius (Aston)


Lestor, Miss Joan
Noel-Baker, Rt.Hn.Philip(Derby,S.)
Slater, Joseph


Lewis, Arthur (W. Ham, N.)
Ogden, Eric
Snow, Julian


Lewis, Ron (Carlisle)
O'Malley, Brian
Spriggs, Leslie


Loughlin, Charles
Oram, Albert E.
Steele, Thomas (Dunbartonshire W.)


Lyon, Alexander W. (York)
Orbach, Maurice
Symonds, J. B.


Lyons, Edward (Bradford, E.)
Orme, Stanley
Taverne, Dick


MacColl, James
Padley, Walter
Tuck, Raphael


MacDermot, Niall
Page, Derek (King's Lynn)
Varley, Eric G.


Macdonald, A. H.
Paget, R. T.
Wainwright, Edwin (Dearne Valley)


McGuire, Michael
Pannell, Rt. Hn. Charles
Walden, Brian (All Saints)


Mackenzie, Gregor (Rutherglen)
Park, Trevor
Walker, Harold (Doncaster)


Mackie, John
Pearson, Arthur (Pontypridd)
Watkins, David (Consett)


Mackintosh, John P.
Peart, Rt. Hon. Fred
Whitlock, William


Maclennan, Robert
Pentland, Norman
Williams, Alan (Swansea, W.)


MacMillan, Malcolm (Western Isles)
Perry, George H. (Nottingham, S.)
Williams, Clifford (Abertillery)


McMillan, Tom (Glasgow, C.)
Price, Christopher (Perry Barr)
Williams, Mrs. Shirley (Hitchin)


MacPherson, Malcolm
Price, Thomas (Westhoughton)
Willis, George (Edinburgh, E.)


Mallalieu,J.P.W.(Huddersfield,E.)
Price, William (Rugby)
Wilson, William (Coventry, S.)


Manuel, Archie
Probert, Arthur
Winnick, David


Mapp, Charles
Pursey, Cmdr. Harry
Winterbottom, R. E.


Marquand, David
Rees, Merlyn
Woof, Robert


Mason, Roy
Rhodes, Geoffrey
Wyatt, Woodrow


Millan, Bruce
Robinson, Rt.Hn.Kenneth(St.P'c'as)
Yates, Victor


Miller, Dr. M. S.
Robinson, W. O. J. (Walth'stow, E.)



Milne, Edward (Blyth)
Rodgers, William (Stockton)
TELLERS FOR THE AYES:


Mitchell, R. C. (S'th'pton, Test)
Rose, Paul
Mr. Alan Fitch and




Mr. Neil McBride.




NOES


Alison, Michael (Barkston Ash)
Harrison, Col. Sir Harwood (Eye)
Onslow, Cranley


Allason, James (Hemel Hempstead)
Harvey, Sir Arthur Vere
Osborn, John (Haliam)


Awdry, Daniel
Harvie Anderson, Miss
Osborne, Sir Cyril (Louth)


Berry, Hn. Anthony
Hawkins, Paul
Page, John (Harrow, W.)


Bessell, Peter
Heseltine, Michael
Percival, Ian


Biffen, John
Higgins, Terence L,
Pounder, Rafton


Bossom, Sir Clive
Hiley, Joseph
Ramsden, Rt. Hn. James


Boyd-Carpenter, Rt. Hn, John
Hill, J. E. B.
Renton, Rt. Hn. Sir David


Braine, Bernard
Hirst, Geoffrey
Rossi, Hugh (Hornsey)


Brewis, John
Holland, Philip
Royle, Anthony


Brinton, Sir Tatton
Hordern, Peter
Russell, Sir Ronald


Buchanan-Smith,Alick(Angus,N&amp;M)
Hornby, Richard
Scott, Nicholas


Buck Anthony (Colchester)
Hunt, John
Sinclair, Sir George


Bullus, Sir Eric
Irvine, Bryant Godman (Rye)
Smith, John


Campbell, Gordon
Jenkm, Patrick (Woodford)
Stainton, Keith


Carr, Rt. Hn. Robert
Jopling, Michael
Stodart, Anthony


Chichester-Clark, R.
King, Evelyn (Dorset, S.)
Stoddart-Scott, Col. Sir M. (Ripon)


Cooke, Robert
Kirk, Peter
Summers, Sir Spencer


Costain, A. P.
Kitson, Timothy
Taylor, Sir Charles (Eastbourne)


Crosthwaite-Eyre, Sir Oliver
Lambton, Viscount
Taylor, Frank (Moss Side)


Dance, James
Lewis, Kenneth (Rutland)
Temple, John M.


Davidson,James(Aberdeenshire, W.)
Macleod, Rt. Hn. Iain
Thatcher, Mrs. Margaret


Dean, Paul (Somerset, N.)
McMaster, Stanley
Thorpe, Rt. Hn. Jeremy


Deedes, Rt. Hn. W. F. (Ashford)
Macmillan, Maurice (Farnham)
Tilney, John


Dodds-Parker, Douglas
Maddan, Martin
van Straubenzee, W. R.


Doughty, Charles
Maginnis, John E.
Vaughan-Morgan, Rt. Hn. Sir John


Eden, Sir John
Maude, Angus
Wainwright, Richard (Colne Valley)


Elliott, R.W.(N'c'tle-upon-Tyne,N.)
Mawby, Ray
Walker, Peter (Worcester)


Errington, Sir Eric
Maydon, Lt.-Cmdr. S. L. C.
Ward, Dame Irene


Fortescue, Tim
Mills, Peter (Torrington)
Webster, David


Galbraith, Hon. T. G.
Mills, Stratton (Belfast, N.)
Whitelaw, Rt. Hn. William


Gilmour, Ian (Norfolk, C.)
Miscampbell, Norman
Wills, Sir Gerald (Bridgwater)


Gilmour, Sir John (Fife, E.)
Monro, Hector
Wilson, Geoffrey (Truro)


Glover, Sir Douglas
More, Jasper
Winstanley, Dr. M. P.


Gower, Raymond
Morgan, Geraint (Denbigh)
Wolridge-Gordon, Patrick


Grant, Anthony
Morrison, Charles (Devizes)
Wood, Rt. Hn. Richard


Grant-Ferris, R.
Mott-Radclyffe, Sir Charles
Worsley, Marcus


Gresham Cooke, R.
Munro-Lucas-Tooth, Sir Hugh
Wylie, N. R.


Gurden, Harold
Murton, Oscar
Younger, Hn. George


Hall, John (Wycombe)
Nabarro, Sir Gerald
TELLERS FOR THE NOES:


Hall-Davis, A. G. F.
Nicholls, Sir Harmar
Mr. Reginald Eyre and


Harris, Reader (Heston)
Nott, John
Mr, Bernard Weatherill.


clause ordered to stand part of the Bill.

Clause 19.—(RELIEF FOR GROUPS OF COMPANIES.)

Mr. Patrick Jenkin: I beg to move Amendment No. 54, in page 21, line 38, to leave out subsection (2).

The Chairman: It may be convenient to consider with this Amendment No. 55, in page 21, line 42, at end insert:
Provided that this subsection shall not apply where the claimant company and the surrendering company jointly elect and further providing that where relief is granted under the said section 20 relief shall not be granted under this section:
and Amendment No. 108, in Schedule 10, page 62, line 34, at end insert:
6. In subsection (10) of section 20 of the Finance Act 1953, the following proviso shall be added at the end: —
'Provided that where all the shares of a company are owned by no more than five corporate shareholders, all of whom are resident in the United Kingdom, any one of such shareholders may, notwithstanding that it is not an associate company within the meaning of this section, make a subvention payment to that company which shall be treated for tax purposes, in accordance with the provisions of this section up to an amount equivalent in value to that proportion of the company's issued share capital which is owned by the paying company '.

Mr. Jenkin: Before the Chancellor leaves the Chamber, I hope that he will recognise the debt which he owes to this side of the Committee for allowing Clause 18 to stand part of the Bill. Otherwise, the Government would have had no Corporation Tax for the ensuing year, and I fancy that that would have knocked the Budget judgment for six.
Clause 19 deals with a technical matter and I hope the Committee will allow us to hurry through the Amendments at a reasonable pace. The night is not so young and we do not want to waste a lot of time.
Both in 1965 and in 1966, I moved Amendments, first from the back bench and last year on Report from the Dispatch Box, urging on the Government the need to adopt the grouping system for Corporation Tax on groups of companies. The system which I was urging would have resulted in one assessment to Corporation Tax as it used to operate with Profits Tax. On both occasions the Chief Secretary refused the Amendments, but last year he was a little more forthcoming,

because he said that the Government were examining some system which might go part of the way towards achieving what I was aiming at. Clause 19 is the fruits of that examination and we have a brand new system, different from anything which has preceded it, so far as I can ascertain, a system whereby in a group of companies, if one makes a loss and another makes a profit, the loss-making company can surrender its loss to the profit-making company and their taxation can be based on the resulting position.
I am bound to say straight away that this falls considerably short of the full grouping Amendments which we were aiming for in the last two years and, in particular, still leaves the situation where the companies would each have separate assessments. It suffers from a number of grave disadvantages which we shall see as we go through the Clause, but, in spite of the disadvantages, those who are concerned with the taxation of groups of companies will realise that the Government have gone part of the way and will no doubt be grateful for that.
But that is very far from going the whole way, and most of the Amendments, including this, are designed to improve the situation still further. The position is still left that there will be separate assessments on the companies in the group. The grouping is inadequate because it applies only where the accounting periods of the companies coincide as well as those where they overlap. There are serious limitations for close companies, particularly in relation to the operation of the shortfall provisions, and there are other disadvantages.
Most of these could be overcome if subsection (2) were omitted. Subsection (2) is that which removes the procedure for subvention payments which was first introduced by Section 20 of the Finance Act, 1953. The origin of that was the Millard Tucker Report on the computation of profits for Income and Profits Tax purposes. The Committee had pressed on it a proposal that there should be grouping for Income Tax. It saw the difficulties —difficulties which last year I argued did not apply to Corporation Tax—and adopted instead a suggestion by the Inland Revenue for subvention payments whereby a company which had made a profit could make a subvention payment to another company in the group and thus


the taxation could be evened out. The Committee pointed out that it was simple, and that there need be no special safeguards for minorities, because the responsibility would rest firmly with the company whether it was right in all the circumstances to make the payment.
There is no doubt on either side of the Committee that the subvention payment system on the whole has operated very well. There have been difficulties. Certainly it does not meet all cases. Curiously, in the end—it went to the House of Lords—it met the case to which I referred last year, the case of Davies v. Davies Jenkins. However, it is right to remind the Committee of the strictures passed on the Revenue by Lord Upjohn in his judgment in the House of Lords when he complained that in operating the subvention payments system the Revenue had sought to change the construction which had hitherto operated for many years and had sought to limit the application of the Section which, although upheld by the Court of Appeal, had been turned down by the House of Lords.
In his judgment, Lord Upjohn said:
… I am disturbed, as I have been disturbed in another case very recently, at the conduct of the Board of Inland Revenue in respect of these matters. Until 1958 they very rightly accepted the interpretation which I have placed upon this section without question … This led, so your Lordships were informed, to a reappraisal of the section and the board then adopted a construction which, in my opinion, is quite untenable and incidentally produced anomalies. If the board want to change the basis of taxation from the clear words which Parliament has used and to alter a clearly settled practice understood by Crown and subject alike, surely they should seek statutory powers to do so and not, by an internal change of practice, try to alter well-settled law.
It may well be that the Inland Revenue, despite Section 20 of the 1953 Act, which was its own proposal, and in spite of the fact that it has worked well over the years, may have acquired an increasing dislike of it. Be that as it may, Clause 19(2) sweeps it away, and one is bound to ask why? What are the reasons that have led the Inland Revenue to abolish this relief merely because it is introducing another less valuable and somewhat different relief? What is the connection between the relief which is being introduced by Clause 19, the new limited relief for a transfer of losses, and the former

well-tried relief by way of subvention payments?
As will be seen as the debate on this Amendment progresses, there are a number of cases where one will work and the other will not, and correspondingly there are a number of cases where the other one works and the former is inappropriate. It is clear from the representations made to me and a number of my hon. and right hon. Friends that those who are concerned with the operation of the taxation of groups of companies are puzzled and not a little hurt that the Government, though going part of the way to meet their claim for some form of grouping for Corporation Tax purposes, should have accompanied this by a withdrawal of a provision which they consider has been useful and has operated well.
The Government giveth and the Government taketh away, but I am bound to say that there are few to be found to bless the name of the Government.

Sir Harmar Nicholls: Am I to understand that the removal of the subvention facility means that, where the companies' financial years do not coincide, they cannot use the subvention?

Mr. Jenkin: My hon. Friend will recognise that we shall come to an Amendment later which seeks to modify the obstacles which the Clause faces in the way of groups of companies where their years do not overlap. There is an apportionment for time purposes, but it is not only a question of overlapping accounting years; it is also a question of the period during which they are in the same group. There are other difficulties which do not arise in the case of subvention payments, but which undoubtedly do arise in this case, and my hon. Friend is absolutely right when he points out, by implication, that the abolition of the subvention payments in these cases will add considerably to the difficulty of groups of companies which have different accounting periods.
Amendment No. 54, which is the Amendment that has been selected, would retain unvarnished the subvention procedures, and Amendment No. 55 would make it clear that the group could not seek to operate both subvention and this new system of transfer of losses. It would have a choice, and I would respectfully suggest that it would be right


that it should have an option. This would be reasonable and entirely fair.
I have no doubt that possibly the only argument that we should get from the Treasury Bench is that there are risks that this would lead to avoidance. It would be incumbent upon anyone seeking to put that forward to explain how this could arise. How could there be avoidance because there are two alternative systems of granting relief, when neither of them, singly, can give rise to avoidance, and when the taxpayer has to opt for one or the other?
I cannot see how that can seriously give rise to danger of loss to the Revenue or to avoidance of tax by companies, and I very much hope that the Government will, in the face of almost universal demand by the commercial community that the subventions should be allowed to remain, have second thoughts and, even if they cannot accept this Amendment, will at any rate give an undertaking to introduce something that would achieve the same end on Report.

9.30 p.m.

Sir Harmar Nicholls: I wish to be very brief in supporting what my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) has said. When the Chief Secretary and his colleagues are on the right lines, as they are on this occasion, why should they be so grudging? Why should they not be generous, having recognised that this is the right line? They have recognised that, otherwise they would not have made these improvements. Why remove the subvention facility which has proved to be right?
This is the second occasion during the last three hours on which the Government seem to be on the right lines. They have learned from experience and are taking advantage of the knowledge which they have gained in the previous year. Yet they spoil it by going in a grudging way along the right lines. I see the Chief Secretary smiling. I have not seen him do much smiling recently. He is usually very jolly. I hope that while he is in that mood he will give the sort of answer which my hon. Friend and I would like him to give.

Mr. Diamond: I am always delighted to see the hon. Member for Peterborough (Sir Harmar Nicholls). I am always in

high spirits when I see him and all my Governmental colleagues. However, it makes not the slightest difference to the answer, I regret to say.
The hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) was good enough to say that, to a certain degree, the proposed grouping was welcome. It follows from discussions which have taken place and the examination given to the matter over the past year. I promised a year ago that it would be given that examination. It is right that when it is profitable and useful to carry on a business in a different number of enterprises and structures the tax system should not be so organised as to prevent good business from being done. That is the approach, and one tries to meet it reasonably.
We have studied from that point of view only the methods which previously existed for grouping—the full grouping method and the subvention payments method—to see which is the most applicable to the new circumstances and most helpful in doing what we set out to do. The hon. Member for Wanstead and Woodford did not refer to the full grouping method, and I take it from his silence that he is not proposing that method, which has certain defects. A decision had to be made irrevocably, and that did not always suit. The hon. Gentleman says that the proposed method is good up to a point, but would like to see two systems running side by side, although he was good enough to go on to say that an individual company would have to make the choice.
The hon. Gentleman wishes to know why we do not propose to have two systems running side by side. T shall be glad to listen to any arguments to the effect that the achievement of the broad philosophy which I have indicated is being prevented. It will be extremely difficult, however, to persuade me that it would be right to continue two systems, one of them being the subvention payment system. That system has serious defects. The major defect is that a payment has to be made which frequently causes difficulties regarding minority interests. It was always a major defect in that system that, to achieve something which had nothing to do with paying, but to get the grouping, one had to resort literally to a cheque passing.
If we were at this moment considering only the subvention payment system and not any other kind of grouping system, there would be several serious defects in the subvention payment system which we would seek to persuade the Committee to correct. First, the subvention payments system has a major defect in itself, and, secondly, it could not be continued in that form. The hon. Member is not right in saying that we are grudging. That is not the spirit in which we are approaching the matter. We have a responsibility to protect the revenue and also the taxpayer. The main consideration is not to prevent, through the structure of the tax system, good business being done in different form of organisation by people who have the responsibility for doing business in this way for good reasons—not tax avoidance reasons, I understand this, and have lived with it all my life.
But, I repeat, this system is not a good system. In my view, the system that we are proposing is infinitely better. It is much more flexible. We can pick out a certain" company to associate with another company, provided that they are members of a group. We can do that for one year only. We do not have to do so irrevocably. We do not have to make a payment. We do not have any problems of minority interests. That has enormous advantages.
I want to help and not to hinder, so I go straight on to say—and I shall find it extremely difficult to be persuaded to the contrary—that if the Committee accepts it as unwise to have two systems running side by side, adding complexity upon complexity of a kind which the Inland Revenue can Gee no way of coping with—and it is good at coping with complexities involved in a series of companies—if the Committee accepts that as the Bill is drawn it would be unwise and, on the ground of complexity, virtually impossible to have two systems running side by side, I am left with the question, which I freely give to the hon. Member: what about those circumstances in which it may be alleged that the grouping system turns out in good, bona fide cases, not to be as helpful and satisfactory in achieving what it sets out to achieve—the proposed new group-

ing system—as the old subvention payment system?
Several Amendments relate to this point and in respect of all of them I shall be most interested to hear what hon. Members have to say. I shall gladly think about the matter to see whether, in certain cases—I am not giving a blanket undertaking at the moment—it would be possible to adjust the proposed method of grouping so as reasonably to meet the difficulties which would then remain— not all the difficulties, because some are intrinsically incapable of being overcome for certain good reasons about which I hope to persuade the Committee.
To put it shortly, I am grateful for the way in which the proposal has been received. I hope that I have demonstrated that it is a serious attempt to help business do its job. We believe that the proposed system is considerably better than either of the other two systems which existed. We cannot see how we can have the two running side by side. If, in the circumstances described by the hon. Member, with an alternative choice, there are good, bona fide reasons why, in a particular series of cases, problems which were met by the subvention payments system will not be met by the system which the Bill provides, I shall be glad to look at them, after listening carefully to the arguments.
I hope that I have made the position clear and that the hon. Member will not feel compelled to press the Amendment.

Mr. Patrick Jenkin: Sir Eric, you indicated that, with this Amendment, we were taking Amendment No. 108. I wonder if you would care to reconsider that, because it would appear that Amendment No. 108 would be more appropriately taken with Amendment No. 106. I mention that in case any of my hon. Friends wish later to make remarks relative to Amendment No. 108, which otherwise will be out of order.

The Chairman: I appreciated that that point might be raised. I think that it would be convenient, if anyone wished to speak on Amendment No. 108, that those remarks should be made on Amendment No. 106 and not this one.

Mr. Jenkin: I am grateful for that indication, Sir Eric.
Having got that clear, may I say that I regard the Chief Secretary's reply as disappointing. The arguments which have been put to us on behalf of those who will have to administer these provisions do not bear out the case which the Chief Secretary has put to the Committee. He rested his case primarily on what he regarded as the considerable defects in the subvention payment procedure. That is rather surprising, because that procedure has lasted for 14 years almost without amendment. There has been no effort to remedy those defects, except in one case where the Inland Revenue unilaterally sought to alter the construction in a way which, in the end, the House of Lords refused to accept. His second argument was as to some unnamed and hideous complexity the details of which were so terrible that he could not bear to unveil them before the Committee lest we should be shocked.
I remain unconvinced. I cannot see why the Government's new system, which presumably they have introduced as one which will work and not lead to avoidance, and the system which has been operated for 14 years, though modifications could have been made, should not exist side by side with a clear option to choose between the two. It is not a novel proposition in taxation. Dairy farmers, for example, are entitled to be taxed in two different ways. The first is what is known as the "herd basis", and the name of the second one I cannot remember. However, dairy farmers may

opt, and the two systems have different procedures and different results. That is a situation with which the Inland Revenue is happy to live, and there are many other cases where taxpayers may opt for different taxation treatments.

The Chief Secretary has not recognised the weight of argument and strength of case put behind the Amendment by those who will be principally concerned. In these circumstances, it is right that we should voice our disagreement with the Chief Secretary's arguments in the Division Lobby.

Sir Harmar Nicholls: Although the Chief Secretary's reply was disappointing, there was some hope in his words, and that hope confirms the strength of my hon. Friend's case. The subvention payments system has worked, and that is as good a test as one could wish for. The fact that the Chief Secretary indicated that he will think about it next year or before is an admission that he sees the force of my hon. Friend's argument. On those grounds, why wait? The right hon. Gentleman is wavering. He has indicated that my hon. Friend is partly right, and I think that he would be well advised to accept the Amendment now. If he does not, we must test the Committee's strength. We shall lose, of course, but we shall go down knowing that we have argued for the right thing.

Question put, That the words proposed to be left out stand part of the Clause: —

The Committee divided: Ayes 197, Noes 126.

Division No. 352.]
AYES
[9.45 p.m.


Allaun, Frank (Salford, E.)
Callaghan, Rt. Hn. James
Dunn, James A.


Alldritt, Walter
Cant, R. B.
Dunwoody, Mrs. Gwyneth (Exeter)


Allen, Scholefield
Carmichael, Neil
Dunwoody, Dr. John (F'th &amp; C'b'e)


Anderson, Donald
Chapman, Donald
Eadie, Alex


Archer, Peter
Coe, Denis
Edwards, Rt. Hn. Ness (Caerphilly)


Armstrong, Ernest
Coleman, Donald
Edwards, William (Merioneth)


Atkins, Ronald (Preston, N.)
Concannon, J. D.
Ennals, David


Atkinson, Norman (Tottenham)
Corbet, Mrs. Freda
Ensor, David


Bagier, Gordon A. T.
Craddock, George (Bradford, S.)
Evans, Albert (Islington, S.W.)


Barnett, Joel
Crawshaw, Richard
Evans, Ioan L. (Birm'h'm, Yardley)


Baxter, William
Cronin, John
Faulds, Andrew


Bence, Cyril
Cullen, Mrs. Alice
Fernyhough, E.


Benn, Rt. Hn. Anthony Wedgwood
Davidson, Arthur (Accrington)
Finch, Harold


Binns, John
Davies, G. Elfed (Rhondda, E.)
Fletcher, Raymond (Ilkeston)


Blackburn, F.
Davies, Ednyfed Hudson (Conway)
Fletcher, Ted (Darlington)


Blenkinsop, Arthur
Davies, Harold (Leek)
Foley, Maurice


Booth, Albert
Davies, Ifor (Gower)
Foot, Sir Dingle (Ipswich)


Bowden, Rt. n. Herbert
Davies, S. 0. (Merthyr)
Ford, Ben


Braddock, Mrs. E. M.
Delargy, Hugh
Forrester, John


Bradley, Tom
Dell, Edmund
Fowler, Gerry


Bray, Dr. Jeremy
Dewar, Donald
Fraser, John (Norwood)


Brooks, Edwin
Diamond, Rt. Hn. John
Galpern, Sir Myer


Broughton, Dr. A. D. D.
Dickens, James
Gardner, Tony


Brown, Hugh D. (G'gow, Provan)
Dobson, Ray
Garrett, W. E.


Buchan, Norman
Doig, Peter
Ginsburg, David


Buchanan, Richard (G'gow, Sp'burn)
Driberg, Tom
Gordon Walker, Rt. Hn. P. C.




Gourlay, Harry
MacColl, James
Price, Thomas (Westhoughton)


Gray, Dr. Hugh (Yarmouth)
MacDermot, Niall
Price, William (Rugby)


Greenwood, Rt. Hn. Anthony
Macdonald, A. H.
Probert, Arthur


Griffiths, David (Rother Valley)
McGuire, Michael
Pursey, Cmdr. Harry


Griffiths, Will (Exchange)
Mackenzie, Gregor (Rutherglen)
Rees, Merlyn


Hamilton, James (Bothwell)
Mackie, John
Rhodes, Geoffrey


Hamilton, William (Fife, W.)
Mackintosh, John p.
Robineon,Rt.Hn.Kenneth(St.P'c'as)


Hannan, William
Maclennan, Robert
Robinson, W. 0. J. (Walth'stow, E.)


Harper, Joseph
MacMillan, Malcolm (Western Isles)
Rodgers, William (Stockton)


Harrison, Walter (Wakefield)
McMillan, Tom (Glasgow, C.)
Rose, Paul


Hart, Mrs. Judith
MacPherson, Malcolm
Ross, Rt. Hn. William


Haseldine, Norman
Mallalieu,J.P.W.(Huddersfield,E.)
Sheldon, Robert


Maxell, Bert
Manuel, Archie
Shore, Peter (Stepney)


Heffer, Eric S.
Mapp, Charles
Short, Mrs. Renee(W'hampton,N.E.)


Henig, Stanley
Marquand, David
Silkin, Hn. S. C.(Dulwich)


Herbison, Rt. Hn. Margaret
Mason, Roy
Silverman, Julius (Aston)


Hobden, Dennis (Brighton, K'town)
Millan, Bruce
Snow, Julian


Hooley, Frank
Miller, Dr. M. S.
Spriggs, Leslie


Horner, John
Milne, Edward (Blyth)
Steele, Thomas (Dunbartonshire, W.)


Houghton, Rt. Hn. Douglas
Mitchell, R. C. (S'th'pton. Test)
Taverne, Dick


Howie, W.
Molloy, William
Tuck, Raphael


Huckfield, L.
Morgan, Elystan (Cardiganshire)
Varley, Erie G.


Hughes, Emrys (Ayrshire, S.)
Morris, Alfred (Wythenehawe)
Wainwright, Edwin (Dearne Valley)


Hughes, Roy (Newport)
Morris, Charles R. (Openshaw)
Walden, Brian (All Saints)


Hunter, Adam
Moyle, Roland
Walker, Harold (Doncaster)


Irvine, A. J. (Edge Hill)
Newens, Stan
Watkins, David (Consett)


Jackson, Colin (B'h'se &amp; Spenb'gh)
Noel-Baker, Francis (Swindon)
Whitlock, William


Jackson,Peter M. (High Peak)
Noel-Baker, Rt.Hn.Philip(Derby,S.)
Williams, Alan (Swansea, W.)


Jones, Dan (Burnley)
Ogden, Eric
Williams, Clifford (Abertillery)


Jones, J. Idwal (Wrexham)
O'Malley, Brian
Williams, Mrs. Shirley (Hitchin)


Jones, T. Alec (Rhondda, West)
Oram, Albert E.
Willis, George (Edinburgh, E.)


Kelley, Richard
Orbach, Maurice
Wilson, William (Coventry, S.)


Lawson, George
Orme, Stanley
Winnick, David


Leadbitter, Ted
Padley, Walter
Winterbottom, R. E.


Lestor, Miss Joan
Page, Derek (King's Lynn)
Woof, Robert


Lewis, Arthur (W. Ham, N.)
Paget, R. T,
Wyatt, Woodrow


Lewis, Ron (Carlisle)
Park, Trevor
Yates, Victor


Loughlin, Charles
Pearson, Arthur (Pontypridd)



Lyon, Alexander W. (York)
Peart, Rt. Hn. Fred
TELLERS FOR THE AYES:


Lyons, Edward (Bradford, E.)
Perry, George H. (Nottingham, S.)
Mr. Alan Fitch and


McCann, John
Price, Christopher (Perry Barr)
Mr. Neil McBride.




NOES


Alison, Michael (Barkston Ash)
Cower, Raymond
Mott-Radclyffe, Sir Charles


Allason, James (Hemel Hempstead)
Grant, Anthony
Munro-Lucas-Tooth, Sir Hugh


Awdry, Daniel
Gresham Cooke, R.
Murton, Oscar


Bell, Ronald
Grimond, Rt. Hn. R.
Nabarro, Sir Gerald


Bennett, Sir Frederic (Torquay)
Gurden, Harold
Nicholls, Sir Harmar


Berry, Hn. Anthony
Hall, John (Wycombe)
Nott, John


Bessell, Peter
Hall-Davis, A. G. F.
Onslow, Cranley


Biffed, John
Harrison, Col. Sir Harwood (Eye)
Osborn, John (Hallam)


Birch, Rt. Hn. Nigel
Harvey, Sir Arthur Vere
Osborne, Sir Cyril (Louth)


Bossom, Sir Clive
Hawkins, Paul
Page, Graham (Crosby)


Boyd-Carpenter, Rt. Hn. John
Heseltine, Michael
Page, John (Harrow, W.)


Braine, Bernard
Higgins, Terence L.
Peroival, Ian


Brewis, John
Hiley, Joseph
Pounder, Rafton


Brinton, Sir Tatton
Hill, J. E. B.
Ramsden, Rt. Hn. James


Brown, Sir Edward (Bath)
Hirst, Geoffrey
Renton, Rt. Hn. Sir David


Bruce-Gardyne, J.
Holland, Philip
Rossi, Hugh (Hornsey)


Buchanan-Smith, Alick(Angus,N&amp;M)
Hordem, Peter
Royle, Anthony


Buck, Antony (Colchester)
Hornby, Richard
Russell, Sir Ronald


Bullus, Sir Eric
Hunt, John
Scott, Nicholas


Campbell, Gordon
Irvine, Bryant Godman (Rye)
Sinclair, Sir George


Carr, Rt. Hn. Robert
Jenkin, Patrick (Woodford)
Smith, John


Chichester-Clark, R.
Jopling, Michael
Stainton, Keith


Cooke, Robert
King, Evelyn (Dorset, S.)
Stodart, Anthony


Costain, A. P.
Kirk, Peter
Stoddart-Scott, Col. Sir M. (Ripon)


Crosthwaite-Eyre, Sir Oliver
Lambton, Viscount
Summers, Sir Spencer


Dance, James
Lewis, Kenneth (Rutland)
Taylor, Sir Charles (Eastbourne)


Davidson,James(Aberdeenshire, W.)
Macleod, Rt. Hn. lain
Taylor, Frank (Moss Side)


Dean, Paul (Somerset, N.)
McMaster, Stanley
Temple, John M.


Deedes, Rt. Hn. W. F. (Ashford)
Maddan, Martin
Thatcher, Mrs. Margaret


Dodds-Parker, Douglas
Maginnis, John E.
Thorpe, Rt. Hn. Jeremy


Doughty, Charles
Maude, Angus
Tllney, John


Eden, Sir John
Mawby, Ray
Van Straubenzee, W. R.


Elliott,R.W.(N'c'tle-upon-Tyne,N.)
Maydon, Lt.-Cmdr. S. L. C.
Vaughan-Morgan, Rt. Hn. Sir John


Errington, Sir Eric
Mills, Peter (Torrington)
Wainwright, Richard (Colne Valley)


Eyre, Reginald
Mills, Stratton (Belfast, N.)
Ward, Dame Irene


Fortescue, Tim
Miscampbell, Norman
Webster, David


Galbraith, Hon. T. G.
Monro, Hector
Whitelaw, Rt. Hn. William


Gilmour, Ian (Norfolk, C.)
More, Jasper
Wills, Sir Gerald (Bridgwater)


Gilmour, Sir John (Fife, E.)
Morgan, Geraint (Denbigh)
Wilson, Geoffrey (Truro)


Clover, Sir Douglas
Morrison, Charles (Devizes)
Winstanley, Dr. M. P.







Wolrige—Gordon, Patrick
Wright, Esmond
TELLERS FOR THE NOES:


Wood, Rt. Hu. Richard
Wylie, N. R,
Mr. Bernard Weatherill and


Worsley, Marus
Younger, Hu. George
Mr. Timothy Kitson,

Mr. Patrick Jenkin: I beg to move Amendment No. 106, in page 22, line 13, at the end to insert:
Provided that where all the shares of a company are owned by no more than five corporate shareholders group relief shall be available as between that company and any one of those shareholders up to an amount equivalent in value to that proportion of the company's issued share capital which is owned by that shareholder.
The Committee will remember that two years ago the Government, in doing about the only good thing in the Finance Act, 1965, gave statutory recognition to a new concept for the purposes of taxation. It was the concept of the consortium—the situation in which five or fewer companies together owned most of the shares in another company, none of them owning less than 5 per cent.
As the Act was originally drafted, this was applied to inter-company dividends and contained a form of grouping for that purpose. It was later applied to interest-passing between companies in a consortium and last year it was extended, in the Finance Act, 1966, to cover the case of a holding company which was one of the five or fewer companies owning the consortium company. This has been widely welcomed as representing belated but valuable fiscal recognition of an increasingly frequent situation in reality. This Amendment seeks to extend the operation of the new groupings provision contained in Clause 19 to such a consortium.
Let me concede at once that it may be that the drafting is defective—that it does not entirely meet what the Revenue would regard as a reasonable requirement —but perhaps that need not concern us too much. I am sure that the Chief Secretary will understand the principle of the Amendment, and we may argue the merits of that principle.
Very briefly, the argument is that if it is right as between a parent company and a 75 per cent. subsidiary company that there should be this new provision for the transfer of losses for tax purposes, why should this similar provision not be operated in connection with consortium companies which would satisfy the test which applies to consortia for the purpose of the 1965 Finance Act? If it is

right to give this special treatment to a consortium for inter-company dividends and for interest-passing between companies, why should it not equally well be right for the purpose of sharing the losses?
It is right to recognise the nature of a consortium of this sort. I say that five or fewer companies can own the shares of the consortium company, but very frequently there are only two who between them, own, perhaps, 50–50, the shares in the joint operating company. This is, in effect, a form of partnership, a joint enterprise, whereby the partners may pool their resources in patents know-how, management, raw materials and other things, in a joint venture for the common good, and in this way can create new enterprise where there was no enterprise before.
Many of our biggest and most prosperous companies that have grown up since the war have been the products of consortia of this sort. In electronics, one has to only think of I.C.T. and in chemicals there are a number—perhaps the best known is British Titan Products, owned jointly by three companies. This is a valuable form of enterprise. Not only does it allow resources to be pooled, but it allows the risks to be shared. It is clearly something that our fiscal system should, at least, not discourage even if it does not positively encourage it.
It is almost inevitable in those circumstances that in the early years the consortium company will make a loss. I say that it is almost inevitable, because this form of organisation tends to be adoped where the risks are higher and the capital investment is substantial, and where some years will elapse before there will be a return. This is a situation which none of the companies can bear themselves, but which in partnership, they are prepared to accept in the hope of profits in the future.
This is exactly the way in which one would want Clause 19 to operate—that the consortium company makes the loss —yet, as the law will stand if the Bill passes amended in this respect, the only thing that can happen is that the loss can be carried through for two, three, four or even five years before it can be


set off against the future profits of the consortium companies. Meanwhile, the parent, the owner companies, will be making profits and paying full Corporation Tax on those profits with no relief for the loss made by their joint offspring.
That being so, what is happening—and if the Chief Secretary makes inquiries he will find that it is so—is that companies are operating real partnerships. They are not forming a joint company, but are constituting themselves into a partnership which is carrying on the joint operation, so that partnership profits and losses are available to be set against the profits and losses of each partner company. This is a very cumbersome and, indeed, somewhat difficult concept to grasp. Nevertheless, it is happening because of this defect in our fiscal system. This Amendment is intended to remedy the defect and remove an anomaly.
The sort of situation in which this difficulty is placed in the way of the development of consortia is not calculated to encourage innovation, and it is innovation which these consortia companies are primarily aimed to create. We are a country which must increasingly rely on innovation and on the products of innovation if our economy is to thrive and prosper, and this is one perhaps relatively small measure which the Government should accept, and which would be a recognition on their part of the truth of this proposition. Innovation is essential. Consortia are one way of getting it. Our fiscal system should not actively discourage consortia as they are discouraged at the moment. I hope that the Government will accept the argument and that, if they are not able to accept the Amendment, they will give consideration to it with the possibility of introducing something on these lines on Report.

10.0 p.m.

Mr. Diamond: The hon. Gentleman has been good enough to recognise that the Government are anxious to encourage all forms of company structure and business structure and to adjust the tax system so that there will not be in any sense a discouragement or deterrent to these forms of activity. In that sense the consortia are becoming recognised. It had not been borne upon us that there was any need of the kind to which the hon. Member referred. As he pointed

out, a consortium could consist of two members, one with 80 per cent. and one with 20 per cent., and the grouping rules would be such as to set off profit and loss against each other. There are complications, and this would add to the complications and complexities.
The Amendment is perfectly adequate to make the point clear, but it is inadequate on other grounds which we need not go into now. I would not be able to accept the Amendment. This is one of the cases where I have said that we wanted to listen to, and consider, what the Opposition had to say. I make no promise of any kind other than that I will give it consideration between now and Report. Under those circumstances, I hope that the hon. Member will not feel it necessary to press the Amendment.

Mr. Patrick Jenkin: We must recognise that the right hon. Gentleman has been extremely forthcoming. I hope that further consideration will lead him to accept that there is some substance in what I have put to the Committee. In these circumstances, I beg to as leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Patrick Jenkin: I beg to move, Amendment No. 60, in page 22, line 20, to leave out paragraphs (a) and (b).
This is a very short point. The effect of paragraphs (a) and (b) of subsection (4) is that the grouping provisions we are discussing in Clause 19 for loss sharing are not available between a finance or share dealing company and any subsidiary if the proceeds of sale of shares in that subsidiary would be a trading receipt in the hands of the trading company. This is a limitation which has never operated in the case of the subvention payment procedure under the 1953 Act and nor was it necessary to operate it under Section 42 of the Finance Act, 1958.
I should be most grateful if the right hon. Gentleman would explain why this grouping provision cannot be extended to finance companies and, as it were, their stock-in-trade. If it is right to share losses and profits, to even them out, in circumstances which the Clause envisages, why is it not equally right in the case of a finance or share dealing company?

Mr. Diamond: The basic reason is that it does not fall within the philosophy of what I have already indicated. I made it perfectly clear that the approach was to help business, to help trading. This is not helping trading. This is providing that, whereby a matter of fluke or coincidence, a finance house or somebody happens, in the course of its ordinary holding of investments as stock in trade, to hold shares in a particular company which for the time being puts it in the position of being able to claim group treatment in this way, it should be entitled to do so. That was not the purpose at all. That is one answer.
The second answer is that it was certainly covered by the subvention payments system. It would certainly not have been covered by the subvention payments system if that system would have been continuing. We should have been introducing an Amendment this very year, because under this system of Corporation Tax there is relief twice over. Where it is an investment company, it gets the relief twice over because it gets the relief under the grouping system. That is quite clear. There would also be the relief which the investment company gets because its stock in trade would be reduced. Its stock in trade would have to be valued. Its stock in trade would be reduced as a result of the reduction in the profits of the company. It being a holding company or a dealing company, its stock in trade would be reduced. First, there would be the reduction from grouping. Secondly, there would be the reduction from the reduced value from the stock in trade. There would be the same thing twice over. As it does not coincide with the principle, because it would in effect mean a double relief, I hope that the hon. Gentleman will not seek to pursue the Amendment.

Mr. Patrick Jenkin: I do not altogether follow the Chief Secretary, though I recognise that in the case of finance companies and share dealing companies he has an almost unrivalled experience. Therefore, perhaps we ought to go part of the way at any rate in accepting his word that this could lead to tax avoidance.
However, I should have thought that it would be recognised that, if it is right as between a group of companies that they should be taxed, in effect, on the net balance after balancing out profits and

losses, there is no difference merely because the companies happen to be the stock in trade rather than investments of the parent company. The taxing Statutes are full of measures to avoid the receipt of double relief. All the dividend stripping provisions as operated by finance companies contain measures to prevent that. I should have thought that there was some argument for suggesting that it could equally well be available here.
We will study what the Chief Secretary has said. We do not wish to press this Amendment to a Division. Perhaps we shall have an opportunity to return to it later.

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause ordered to stand part of the Bill.

Schedule 10.—(GROUP RELIEF.)

Mr. Patrick Jenkin: I beg to move Amendment No. 57, in page 61, line 31, at the end to insert:
(4) To the extent that a company's income arises from sources outside the United Kingdom, the company may elect that the income shall be disregarded in computing the amount by which the expenses of management exceed the company's profits for the purposes of sub-paragraph (1) above:
Provided that where such election is made no deduction for expenses of management shall be made under the said section 57 against that income from sources outside the United Kingdom.
The introductory words of Clause 19 refer to
Relief for trading losses and other amounts eligible for relief from corporation tax …
In this Schedule these other amounts are specified and the exact treatment of each is set out. This appears from paragraphs 1 to 4 of the Schedule. Paragraph 1 deals with losses, which are the main subject matter of the schedule. Paragraph 2 concerns capital allowances. In the consortia case it is primarily the capital allowances which the companies have wished in past years to take advantage of. Paragraph 3 concerns management expenses. Paragraph 4 relates to charges on income.
The Amendment deals with a special point which arises in relation to management expenses. Where an investment


company is receiving dividend income but incurring management expenses in the course of so doing, it is able to set off its management expenses against the dividend income for tax purposes. The position is different however, when it receives income from overseas. This is what is involved here, and I am intrigued to see that it is the Financial Secretary who has landed himself on the Front Bench to answer this case, perhaps because it is concerned with overseas income, with which he has come to be connected. Where it is overseas income, which is received after deduction of the foreign tax, as a result of double tax relief there is very often no foreign income chargeable to Corporation Tax, or, at least, it may be only partially chargeable to Corporation Tax, and this may have the effect of reducing the value of the relief in respect of management expenses.
When this happens in a single company, it is, of course, an inevitable feature. If, as a result of double tax relief, no Corporation Tax is payable, there is nothing against which the management expenses can be set off. But in the case of a group of companies, there is no reason why the same should apply. A parent company incurs management expenses. Subsidiary A makes profits in the United Kingdom. Subsidiary B has overseas income after foreign tax. In such a case, there seems to be no reason why set-off of management expenses in respect of subsidiary B should be limited as it would be in the case of a single company. Yet this is the effect of the Bill as drafted. The management expenses are available for set-off only to the extent that they exceed the total income, thus allowing no relief in respect of double taxation relief, even though it would be available in the case of a single company.
The Amendment would allow a company to opt to have its overseas income disregarded in these circumstances for the purpose of computing its total income. There must, therefore, be a corresponding limitation on the right to make set-off for management expenses. This seems a reasonable provision. It would allow a group to continue to be treated as a group and to pay tax on the net result of the profits and losses of its operating parts.
This seems to be fully within the spirit and intention of the Clause and Schedule, and it is a reasonable Amendment. A group ought to be treated as a single entity, and an individual member of the group does not necessarily need to be treated as a separate entity for this purpose as though it were a single company unattached and trading on its own. It is a fair Amendment to make, and it should not lead to undue avoidance. I hope that the Government will accept it.

10.15 p.m.

Mr. MacDermot: I cannot advise the Committee to accept the Amendment. The provisions in the Schedule as they stand are based on the simple principle that group relief in all cases, in the case of both trading companies and investment companies, will give to a company in a group the option of set-off, against another company's profits, losses or expenses which it could otherwise carry forward. There is a distinction between the position of a trading company and of an investment company, but this arises not from any new distinction drawn in the Schedule but from the existing difference that a trading company has an option allowing it to carry forward a trading loss without setting it off against investment income. By the nature of things, that distinction cannot be drawn for an investment company.
In arguing for his Amendment, the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) urges that, to the extent that an investment company has to set some of its management expenses off against its overseas income, it has so much the less relief. To some extent this is true. It has the advantage of being able to set its management expenses in whole against its United Kingdom income and get full relief against full rates of Corporation Tax, although the assumption is that those expenses have been incurred in relation to the overseas income. But the distinction here is a reflection of the fact that the income for overseas tax purposes is the gross income, but for United Kingdom tax is only the amount after management expenses.
In our view, the Amendment, which is designed to let the company throw some of its management expenses against another group member's United Kingdom income, would enable it to secure both relief within the group at the full Corporation Tax rate for the management


expenses and the double taxation relief for overseas tax on the like amount of overseas income. This could not be justified, for the simple reason that an investment company's incomings and outgoings are all elements in a single business and cannot be properly split up in this way. Its total investment income is its business income, and the net result of its year is the balance of total incomings and outgoings.
With the trading company, one has a different concept, a different position, in that its trading income and investment income are separate concepts and are dealt with separately. The group relief in this case enables it to be set off against another company's profits what it could otherwise carry forward, and we do not think that it is right to grant the relief any further than that.

Mr. Patrick Jenkin: I find it very difficult to follow the Financial Secretary's somewhat tortuous explanation. At one point I thought that he was making my case, saying that an investment company must be treated as a single entity. In a sense, that was what I was asking for.
The Financial Secretary has obviously made a complex case and we shall want to study it and possibly return to this matter on Report. It is sometimes difficult to follow an argument of this sort as it is first put down. In the circumstances, it would be right that, rather than press the Amendment to a Division at this stage, we study what the Financial Secretary has said and return to it later.
I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Patrick Jenkin: I beg to move Amendment No. 58, in page 61, line 48, at the end to insert:
Provided that in computing the profits of the claimant company no regard shall be had to any deduction falling to be made in respect of losses, allowances or expenses of management of any other period, except any deduction falling to be made against chargeable gains in respect of losses incurred before the accounting period.
The Amendment exposes another flaw in the system, where the group of companies will be considerably worse off than it was under the system of subvention payments. Where a group has made an overall loss, the losses are carried forward in the individual companies. Paragraph 5(1) of the Schedule has the effect of requiring the company to utilise the losses which it is carrying forward before it arrives at a profit which is available for set-off against losses made elsewhere in the group, losses which are available for transfer under Clause 19.
There was no such restriction in the case of subvention payments and I am advised that the situation arises from time to time where the group may wish to operate a loss-sharing provision— whether by way of subvention or whatever it may be under Clause 19—in respect of the profits and losses made in the particular year, and does not necessarily wish to be obliged to absorb past losses against profits of the year in question before it can use the balance of these profits to absorb losses made in the year in question. That is to say, the old system had in this regard greater flexibility than the new.
The Amendment would have the effect of restoring the flexibility which these companies enjoyed under the subvention system. I hope that the right hon. Gentleman will regard this as reasonable. He has indicated that we would have to deploy most powerful and overweening arguments to budge him an inch from the view that he has provisionally taken up, but here is a case where a reasonable provision has operated in the past and one which we hope might continue to operate in future.

Mr. Diamond: I am listening carefully to all the arguments the hon. Gentleman is putting. As I have indicated, I am most anxious to try to meet

circumstances in which, under the new grouping, there might possibly be some additional flexibility which was available, and sensibly available, before. This is not one of those cases.
The flexibility available before derived purely from an oddity, resulting from the difficulties attached to the subvention payments system. This is a somewhat different system. What we ought to meet is the relief that a company ought to get in terms of not being required to pay tax which it would otherwise be required to pay in a given year. The relief that we should try to provide is immediate relief—that is, instead of one company having to wait until a future year for relief, a second company should set off against profits of the second company the loss of the first company, so that tax would not be payable in that year. Otherwise, it would pay tax for one year after there was amalgamation or grouping.
It is reasonable to have to meet that situation, but that is quite a different proposal from what the hon. Gentleman is putting, which is not merely that we should bring a loss to the necessary extent into the profitable company so as to extinguish the possibility of what I am saying, and extinguish tax which would otherwise be paid—but should go further. We have no ground for going further and transferring from Company A to Company B such an amount of loss that Company B would have its profits extinguished and would carry the loss forward. That is not part of the philosophy I have propounded.
We will try to meet the situation but it is unnecessary, in order to do that, artificially to transfer a loss from one company to another so as to give a new company the right to carry forward a loss which did not belong to it but to a different company. We are not required to do that in order to help business properly to get on with its job. It is something which happened oddly—not deliberately—under the subvention payments system. It was unfortunate and unwelcome and was an oddity which we should not bring into our present system.
I have explained the situation briefly. This is a small point but I am grateful to the hon. Gentleman for bringing it forward. I have listened carefully but


I am sorry to say that I do not think that this is a case where we should even undertake to consider the matter further. Plainly, therefore, I must advise the Committee to reject the Amendment.

Mr. Patrick Jenkin: It may well be that there could be common ground between us when we come to look at this again. I was not envisaging a situation where a transferred loss could be carried forward and if the Amendment would have that effect I recognise that perhaps it has been too widely drawn. All I was looking for is that the loss should be transferred to the extent to which it would then be extinguished by the profits in the claimant company in terms of the Bill. This would lead the claimant company, if it passed losses in this way, free to carry those losses forward. It is not a question of carrying forward the losses which have been its own. It may be that we can come back to that.

Mr. Diamond: The hon. Gentleman has made his point clear and I rise to say that in that respect we are not on common ground. The old losses must be extinguished before the surrendering company's losses are deducted from the claimant company's remaining profits.

Mr, Jenkin: It seems that, however many claimant companies there may be, I always bear the loss on this one. I recognise that the Chief Secretary is not prepared to yield on this. As he said, it is not a very important point, but it has been put to me and I have felt it right to put it before the Committee.
In the circumstances, I think it right that I should beg to ask leave to withdraw this Amendment.

Amendment, by leave, withdrawn.

Mr. Diamond: I beg to move Amendment No. 100, in page 63, line 1, after 'by' to insert 'applying'.
This is a simple drafting Amendment to insert a word which inadvertently was omitted from the Bill as introduced.

Amendment agreed to.

Mr. Patrick Jenkin: I beg to move Amendment No. 59, in Schedule 10, page 63, to leave out lines 11 to 17 and insert:

(7) Group relief shall be given for such periods throughout the whole of which the surrendering company and the claimant company are members of the same group but so that where a company joins or leaves a group during an accounting period relief may be given for that part of the period during which it is a member of the group and for this purpose any apportionments shall be made in accordance with the rules in sub-paragraph (2) of paragraph 6 above.
We come to what is a major difficulty with the new system and I cannot help feeling that it is one with which the Government must have some sympathy. It was a point adverted to by my hon. Friend the Member for Peterborough (Sir Harmar Nicholls) on the first Amendment moved to Clause 19. This is the question of apportionment where the accounting periods of the companies within the group are not coterminus.
Paragraph (6) provides for apportionment on a time basis. This would appear to be reasonable. Amendments were tabled by the hon. Member for Ashton-under-Lyne (Mr. Sheldon) and the hon. Member for Hey wood and Roy ton (Mr. Barnett), but we would accept that this is reasonable.
Paragraph (7), which Amendment No. 59 seeks to replace with another paragraph (7), as drafted in the Bill provides that even where there are two accounting periods which partially overlap, nevertheless, the two companies in the group must be in the group for the whole of their accounting periods, subject to the minor exception of a new company which has been set up. This appears to be unreasonable. Provided that the two companies are members of the group for the period which their accounting periods overlap, it would seem that the purposes of the legislation are satisfied and that there cannot be any objection. Provided the accounting periods of both companies do not overlap and they are not members of the same group, there can be no objection to granting relief. However, we find it impossible to amend paragraph (7) to achieve this purpose and we have therefore replaced it with a new paragraph (7) to achieve that purpose.
The Chief Secretary may say that the problem under paragraph (7) can be dealt with by a broken period by having a short period for one company so that its accounting period overlaps for the whole of the period when the companies are members of the same group.
My answer would be that it seems an unnecessary complication to achieve the objective which the companies wish to achieve. Everybody knows that a company makes up its annual accounts on a 12-month basis. One purpose is to compare results year by year over a series of years. It is always a complication which lasts for a number of years that wherever a company has a broken accounting period one has to have a note on the accounts or figures produced for management stating, "This was only a 7½ month period", or whatever it may be.
My Amendment seeks to achieve the objective of the existing paragraph (7); it is not enough to give greater relief except to the extent that it will give relief where, under the existing paragraph (7), it would not be available. Nevertheless, it would be reasonable that relief should be available in those circumstances without the companies having to engage in the tiresome nonsense of broken accounting periods, which would achieve the same objective. I believe this to be a very reasonable Amendment, and I hope that the Chief Secretary will be able to accept it.

10.30 p.m.

Mr. Diamond: The hon. Gentleman, on behalf of the Opposition—I hope that I do him no harm by saying this—is behaving in a most co-operative and sensible way, and I want to reciprocate.
I would interject that the hon. Gentleman has nothing but my admiration for the way in which he manages to cope, without the assistance that I have, with these fantastically complicated areas of taxation. I should have found it impossible when doing a similar job on a much less prominent bench.
The hon. Gentleman has understood the position absolutely accurately. He is asking whether we are going to put companies to the somewhat tedious trouble of preparing broken period accounts to achieve what they want to achieve, of having accounts covering overlapping periods. We are here talking about grouping and groups, and, therefore, about companies which by and large finish their accounting periods on the same date, and if a company enters such a group it will tend to adjust its accounting period to fit.
The hon. Gentleman said that there are difficulties about broken periods. This is inherent in the problem of being a member of a group for company law purposes rather than a problem of being grouped for Corporation Tax purposes. So although there would be a broken period at one part of the period, it would have to arise in any case. Therefore, I have to suggest that the hon. Gentleman's argument is not as strong as he thought at first.
There is the problem that a simple time apportionment is perhaps a little too simple. It is open to a company which has made a loss in a part of a year to join a group and then to be fed automatically with profits, and, therefore, for the overall result of that company to be such that if one apportioned it on a time basis one would get a wholly inaccurate spread of the profit or overall loss in the period. So those are the two problems.
I do not want to put companies to the difficulties of getting out separate accounts if one does not have to do this. It seems to me that on balance the proposal in the Bill is the right one.
I have listened to the hon. Gentleman. I should be grateful if he would give me time to consider this further. I will not go further than that. I have given him the arguments; he has given me the arguments. We owe it to each other to give further consideration to the point.

Mr. Patrick Jenkin: I am extremely grateful to the Chief Secretary not only for his forthcomingness but for the very kind words with which he opened his speech. I seem to have managed to conceal my lack of understanding, of these matters remarkably successfully. He is right; they are complicated. I am most grateful for his undertaking to look at this again.
I did not place stress so much on the company law aspect of preparing accounts perhaps because I have never been concerned with that aspect of a company's management. I was more concerned with the problems of management accounting, the problem of comparing company and management performance, where I have had difficulties in preparing papers for management on broken accounting periods. It adds considerable complication over a period of years and should be avoided if possible.


If the right hon. Gentleman can find a way round which meets his objectives and my objectives, those concerned with this sort of legislation will be very grateful.
I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Patrick Jenkin: I beg to move, Amendment No. 109, in page 64, line 9, at the end to insert:
10.—(1) If the claimant company and the surrendering company so agree the former may pay to the latter an amount equal to the amount surrendered by the latter to the former.
(2) Any amount paid under sub-paragraph (1) above shall be treated as an expense of the claimant company and as income of the surrendering company for the accounting period in respect of which it is paid, for the following purposes—

(a) in any computation under paragraph 7 of Schedule 18 to the Finance Act 1965;
(b) the computation of profits under paragraph 6 of Schedule 17 to the Finance Act 1965;
(c) in any calculation relevant to the calculation of the three-year surplus under section 85(6) of the Finance Act 1965 as amended by Schedule 7 to the Finance Act 1966;
(d) in calculating income from all sources for the purpose of section 84(3) of the Finance Act 1965, and where and insofar as the payment has been used by the claimant to reduce the corporation tax on income with unused credit, in calculating the amount of that income
but for no other purposes of the Corporation Tax Acts.

The Temporary Chairman (Mr. J. C. Jennings): With this Amendment we take also Amendment No. 110, in page 65, fine 10, at end insert:
Provided that no payment for group relief shall be made in respect of an amount surrendered where and to the extent that a payment has been made in respect of that amount under paragraph 10 of this Schedule.

Mr. Jenkin: With this Amendment we come to what many people regard as a major difficulty of the new system compared with the old subvention payment system. The Chief Secretary, I think in the first debate we had on Clause 19, put as a difficulty, as an obstacle, as a disadvantage of the subvention system that a cheque had actually to pass, and that because of minority interests and so on it was necessary to proceed strictly in this matter. The point which arises on

this Amendment is that it is not always a disadvantage that money should pass, and indeed, one of the advantages claimed for the subvention system was that any transfer under the new system of loss sharing which the Bill contains is that the cash, as it were, did follow the tax treatment; there was cash transfer to represent how the tax treatment ultimately was applied to the situation.
With the subvention payment there was actually a transfer of cash from company A to company B. This put company B in funds to offset its loss, and taxation consequences followed. With the new system there is no transfer of cash but merely transfers of accounting concept of the tax loss—the loss for tax purposes; and it is then transferred to claimant company A and is allowed to reduce the company's tax assessment. But it leaves company B—and this is really the point of the Amendment—still in its own accounts with the deficit which it has incurred.
All that has happened is that, although in the tax computation there has been a transfer of its loss, the actual statutory accounts which it prepares at the end of each year will show the loss there. One can imagine the situation where for a number of years in succession one company in a group is making losses and is therefore piling up a sizeable deficit on its profit and loss account, and this can give rise to difficulties which may certainly in certain circumstances give rise to embarrassments and it can give rise to considerable inconvenience.
It was perfectly possible before Section 20 of the 1953 Act was passed to make subvention payments. It was rather dangerous; one did not necessarily get it allowed as a deduction in the subventing company; it was not necessarily treated as a receipt of the subventing company; and if one did it for a number of years in succession it could give rise to an annual payment from which tax ought to be deducted.
The Chief Secretary may say, "You can go back, surely, to the 1953 position, if this is really your difficulty." My answer to that is that the Finance Act, 1965, has made that almost impossible. It is difficult to imagine circumstances where a subvention of that sort would not be regarded—or at any rate suffer


from a grave risk of being regarded— as a distribution with all the liabilities to Schedule F and so on that would apply. I do not think anybody would now adopt that solution to the problem. Therefore we are left with the problem of the mounting deficit and no means of relieving that.
What these two Amendments provide is that there should be a limited right with only very limited tax consequences of a transfer of cash from the claimant company to the surrendering company, as it were, in return for the surrender of the loss, which would avoid the difficulty of the mounting deficit in the loss making company. This is, as it were, a sort of halfway house which accepts completely the framework of the new system the Government are proposing and yet allows companies to avoid the embarrassment and difficulties and inconveniences of the situation which I have described. It would be treated as an expense in the hands of the payer and as income in the hands of the recipient for the four purposes named in subparagraph (2)(a), (b), (c) and (d) of the new paragraph 10 which we are proposing.
Briefly, (a) covers the method of calculating distributable incomes for the purposes of shortfall prospects of close companies, (b) deals with dividend stripping, (c) deals with the three-year surplus provision, and (d) deals with the overspill relief from double taxation. Those would be the only purposes for which this payment would be regarded as, respectively, a deductible expense and a trading receipt. There would be no tax consequences, apart from those four.
They are necessary to achieve fairness and for the protection of the Revenue. We should leave both the Revenue and the taxpayer in the same position, but would avoid the embarrassment and difficulty which would arise if there were no provision for payment of this sort.
The problem is regarded as a very important one by those who have to deal with these complicated matters. One can imagine a situation where a public company is a member of a group, 75 per cent. of the shares are owned within the group and 25 per cent. or less are owned by the public. In such circumstances, it could be difficult if the mounting deficit

were allowed to go unchecked. That is a situation which was dealt with easily in terms of the subvention payment procedure.
This is a modification of the new relief which I hope that the Government will feel able to accept. It would go part of the way to restoring one important advantage of the subvention system. If the Government are not prepared to accept it and we do not have some cogent reasons, it is right that I should warn the Chief Secretary that we feel so strongly about it that we shall be obliged to press the matter to a Division. However, I hope that the right hon. Gentleman will be forthcoming on this one.

Mr. Diamond: I am sure that the hon. Gentleman would wish me to pay more regard to the weight of his arguments than to the weight of numbers in the Division Lobby. I respond to his arguments rather than to what he said at the end of them, although I take that as an indication of the importance which he attaches to the Amendment.
There are certain elements in this overall approach on which we wanted to hear what the Opposition had to say and to which we should be glad to give consideration.
I should find it very difficult to be persuaded about the appropriateness of carrying on a subvention system side by side with a grouping system. What the hon. Gentleman is proposing for four kinds of case is something of a subvention payments nature. I say that to show that I understand what he is driving at and, to that extent, I shall find it difficult to be persuaded that the hon. Gentleman is on the right lines.
Nevertheless, with regard to the shortfall position and dividend stripping, which were his first two points, there are elements which I gladly undertake to look at, though not with a view to introducing something of a subvention payments system. That is a major hurdle which we should not be willing to accept. Rather, we shall look at it to see if the existing system can be adjusted to meet the points which he has made about those two. I am giving no precise undertaking in saying that, but I shall be glad to look at the position in relation to my other remarks. These matters tie up one with


the other, and that is why I indicated at the beginning that there is a series which one would want to look at, because any review would be related to the whole approach.
10.45 p.m.
As far as the third item is concerned, that is, the three-year surplus, I think I had better put the hon. Gentleman out of his misery straight away. This is something we cannot meet. If we met what he is proposing in one form or another it would merely result in the choice being made as to which particular company would have either the transfer of the loss or the profit so as to get the maximum benefit from the three-year surplus relief provision, a benefit which would be wholly in excess of what would have happened if the whole of the activities had been carried on under one roof. So we cannot meet his point of view so far as the three-year surplus is concerned.
The transitional overspill relief again is something which I think is less strong than the hon. Gentleman's first two points, but it is something we would look at at the same time. I do not want to invite the hon. Gentleman too strongly to withdraw his amendment, lest he draw too much from what I have said, but I have indicated that I would look sympathetically at (a) and (b) though not (c) and (d).

Mr. Patrick Jenkin: I think the Chief Secretary's words will be welcomed by those who are concerned with these matters. It will not have escaped his attention that in agreeing to look sympathetically at (a) and (b) he has in fact picked out the two which have permanent importance. He has rejected (c,) which clearly has only transitional importance, and (d) which is important but which relates to a rather longer period. I think we are most grateful for that, and in the circumstances I certainly would not advise my hon. and right hon. Friends to vote in favour of this Amendment.
I hope we may see something on the Order Paper on Report which will show that the Chief Secretary's sympathy has resulted in action.
I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Patrick Jenkin: I beg to move, in page 65, line 30, at the end to insert:
Provided that this paragraph shall not operate to prevent the reduction of the distributable profits of a company, as mentioned in section 85(6)(b) of the Finance Act 1965, by the amount of the losses of any other company incurred in the years 1967–68 and 1968–69.
I was going to develop the problem of the three-year surplus at some considerable length, because this is a subject which the Chief Secretary knows is dear to his heart and to mine after we spent many happy hours on it last year, but in view of the expression of opinion he has already given vent to on the last Amendment, I believe I should be beating the air. However, I will formally move the Amendment in order to give the Chief Secretary the opportunity to explain why he cannot possibly accept it.

Mr. Diamond: I can only congratulate the hon. Gentleman on making his own mind absolutely clear and on describing my point of view with such perspicuity that I need not expand on it. I cannot recommend the Committee to accept the Amendment.

Mr. Jenkin: In view of the Chief Secretary's cogent speech—perhaps the most cogent he has made on this Finance Bill—I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Schedule 10, as amended, agreed to.

Clause 20.—(CAPITAL ALLOWANCES.)

Question proposed, That the Clause stand part of the Bill.

Mr. Higgins: I do not wish to detain the Committee more than is necessary, but this is a rather complex Clause, and we would be grateful if we could have some explanation of it. As I understand it, its purpose is to correct previous mistakes in drafting and also, in some respects, to clarify the position regarding entitlement to capital allowances. It involves a substantial element of retrospection, because the last part of subsection (2) says:
The said section 56 of the Finance Act 1965 shall be deemed always to have had effect as amended by this subsection.
As I understand it, this means that it will be possible henceforth for the


Government to take action under the previous legislation, which they would not otherwise have been able to do.
I should like the Minister to tell us what will be the position if we do not accept the Clause. I think that this is the simplest way of finding out precisely what it means. The Committee is right to give due regard to any legislation which is retrospective, and I therefore think that it would be helpful if we could have some guidance on the matter. In particular, what will be the effect on the various categories which appear under paragraphs (a) (b), (c) and (d) of subsection 4, which cover the temporary disuse of a particular asset, an asset which is in existence for only part of the year, the question of leasing, and the question of initial allowances for cars. Are we to understand that if the Clause is not approved investment decisions which have been taken and which would be expected to receive capital allowances will not get them?

The Temporary Chairman (Mr. J. C. Jennings): Mr. Diamond.

Mr. Diamond: I am sorry that I did not rise immediately, but there were several reasons for not doing so. First, I was waiting for the Question to be put. Secondly, I wanted to inform the Committee of the great luxury which it was going to enjoy—

The Temporary Chairman: Order. I had proposed the Question. It was the duty of the right hon. Gentleman to rise if he wished to speak.

Mr. Diamond: I apologise, Mr. Jennings. I was about to say that the Committee was going to have the luxury of hearing two Government Front Bench speeches, one of which, mine, was going to be very short.
The hon. Gentleman has made valid points. As he said, retrospection is a serious matter and deserves the most careful attention. It is a matter to which the Government give great care. I doubt whether I am capable of dealing with such an important issue as this because, as the Committee knows, I am no lawyer. The best legal brains that the Government can produce should be made available to help the Committee on this issue, and if you thought it satisfactory, Mr. Jennings, I would invite the Committee

to listen to my hon. and learned Friend the Solicitor-General.

The Temporary Chairman: So be it.

Mr. Higgins: We are delighted to have the expert advice of the Solicitor-General on questions of retrospection, and perhaps I might raise one matter with him. Subsection (2) says at the top of page 23:
… so much of the said subsection (5) as requires an amount so carried forward 
instead of specifying the exact parts of the subsection. We should be grateful if the hon. and learned Gentleman would say whether this is the normal form of words, or whether it would be better to specify which parts of the subsection are not to have effect.

The Solicitor-General (Sir Dingle Foot): I apologise to the hon. Gentleman and to the Committee for not having been present when the Clause was reached.
As the Committee will appreciate, this Clause is highly technical and is designed for two separate purposes. Since last autumn Parliamentary counsel and officers of the Inland Revenue have been working on the consolidation of the law relating to capital allowances for the purposes of Income Tax and Corporation Tax. In the course of their examination they discovered that two corrections should be made. Those are covered by subsections (1) and (3) of the Clause. They also discovered that, in certain respects, it was desirable to clarify the law.
The hon. Member for Worthing (Mr. Higgins) was particularly concerned with the question of retrospection. I must, in dealing with this matter, go into the technicalities involved. Subsection (1) deals with the attractive subject of initial allowances and investment allowances in relation to dredging. Capital allowances for expenditure on dredging were first introduced by Section 17 of the Finance Act, 1956. That provided for an initial allowance equal to one-tenth of the expenditure for the first relevant year's assessment, and for each subsequent year's assessment until the year in which one-fiftieth of the expenditure had been reached. The Finance Act of that year also suspended investment allowances.
The next stage was reached with the Finance Act, 1958, which increased the


rate of initial allowance for dredging from one-tenth to three-twentieths for expenditure incurred on or after 15th April, 1958. The hon. Gentleman will have observed the references to one-tenth and three-twentieths in subsection (1).
The Finance Act, 1959, restored the investment allowances, and Section 21(4) of that Measure provided that expenditure on dredging incurred after 7th April, 1959, should qualify for an investment allowance of one-tenth; and there was a reduction of the initial allowance of three-twentieths to one-twentieth in respect of expenditure incurred after 7th April of that year.
That brings me to the Finance Act, 1966, which abolished investment allowances. If that had been all it did, then the rate of three-twentieths—the higher rate of relief laid down in the 1958 Act for initial allowances—would automatically have been revived. That did not happen because of the provisions in the previous year's Measure, the Finance Act, 1965, which made specific provision—I will not go into the details—for initial allowances for dredging.
In this year's Measure we have restored the three-twentieths. I agree at once that this is a form of retrospective legislation, but it is not retrospective in favour of the Inland Revenue. It is in favour of the taxpayer—and I am sure that the Committee will consider that it therefore falls into a wholly different category.
Subsection (2) of the Clause is designed to remove a doubt, but to appreciate that we must go back to the Income Tax Act, 1952, as amended by later enactments. Under that Act, capital allowances are given in relation to a trade; for example, one may have a property company which is the landlord of an industrial building. An allowance in relation to the building may be given against the income which the building produces. In other words, it may be set against the Income Tax of the year in which it is due and the excess may be carried forward against such income for later years.
In this case the taxpayer has an option. He can have the amount set against his general income for the tax year—not against the special income arising from

the particular asset—but for that year and for one other year. What he cannot do, when dealing with Income Tax law, is to set it off against his whole income as distinct from his special income for more than two years. That was the system which has prevailed for a long time in relation to Income Tax.
11.0 p.m.
In 1965 Parliament enacted the Corporation Tax. The scheme of that Act was that precisely similar provisions should apply to capital allowances. The intention, again, was that the taxpayer should have an option. He could set off the amount for any number of years against his special income but for only two years against his general income. It was intended that that result should be brought about in relation to Corporation Tax as it had prevailed in relation to Income Tax, and in my view that result was achieved by Section 56 of the 1965 Act. But some doubt has been cast on the matter and it is desirable to set that doubt at rest.
So much for subsection (2). I turn to subsection (3). The 1952 Act provided for balancing allowances and balancing charges where machinery or plant in respect of which an initial allowance or an annual allowance had been made for any year of assessment was sold or ceased to belong to the person carrying on a trade or was destroyed or put out of use. A later Section of the same Act gave the owner who replaced machinery and was subject to a balancing charge certain options. When investment allowances were introduced in 1954, they were an alternative at that time to initial allowances, and accordingly in Schedule 2 to that Act, the 1952 Act was amended so as to make the provision of the 1952 Act applicable in the case of a taxpayer who was not in receipt of initial allowances.
The Finance Act, 1956, repealed the whole of Schedule 2. If the matter ever came to be decided in a court, there might be arguments on the effect of the repeal. Does it mean that the law reverts to what it was in 1952? I am inclined to think that it does. However that may be, it is clearly desirable that assets qualifying for investment grants should be covered and not merely assets which qualify for initial allowances. The Committee will recall that under the 1966


Act one cannot have both. Assets qualifying for investment grant do not qualify for an initial allowance. It is clearly desirable that taxpayers in receipt of investment grants should be able to avail themselves of the provisions of the 1952 Act. We therefore put the matter beyond doubt. Here again it is a form of retrospective legislation, but it is retrospective in favour of the taxpayer and not of the Crown.

Mr. Higgins: We could probably clarify the matter if we asked a question. While we do not want to create an overall precedent, we accept that if retrospection is in favour of the taxpayer, it is probably a good thing. May I ask whether there is any point on which this is not the case? If not, we should be happy to accept the hon. and learned Gentleman's explanation.

The Solicitor-General: There is no retrospection here except that in favour of the taxpayer.
Subsection (4) raises four extremely recondite points of revenue law. Each paragraph embodies the view which has so far been taken by the Revenue and that view has not been challenged in any case. I therefore invite the Committee to accept that subsection, too.
With those few words of explanation, I hope that the Committee will accept the Clause.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clause 21.—(FARMING AND MARKET GARDENING: RESTRICTION OF RELIEF FOR LOSSES AND CAPITAL ALLOWANCES.)

Mr. Diamond: I beg to move, Amendment 97, in page 25, line 6, at the end to insert:
'and in applying this definition to a chargeable period of a company "losses" means losses computed without regard to capital allowances'.
It might be convenient to take at the same time Amendment No. 98, as the two go together. They are drafting Amendments designed to ensure that losses incurred by a company in the years prior to the year of claim are all calculated on the same basis. This is such an eminently reasonable proposition that I hope that I need not detain the Committee further with it.

Amendment agreed to.

Further Amendment made: In page 25, line 25, leave out from 'company' to end of line 26.—[Mr. Diamond.]

Mr. Diamond: I beg to move Amendment No. 99, in page 26, line 9, after 'and', to insert:
'accordingly relief from income tax or from corporation tax may be restricted under this section by reference to losses some of which are incurred in years of assessment and some, computed without regard to capital allowances, are incurred in a company's chargeable periods'.
This again is a drafting Amendment. It is designed to correct a possible doubt about the interpretation of the Clause. It is designed to meet the case where a hobby farmer has operated through a company for part of the five years in question—part of the five years before the year of claim—and in partnership or on his own account for the other part of the five years. It deals with the difficulty, and without it there would have been some doubt as to the manner in which the accounts should be prepared and the figures calculated in those varying situations.

Amendment agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 22.—(TAX-FREE INCOME OF BANKING BUSINESSES, ETC., CARRIED ON BY NON-RESIDENTS.)

Question proposed, That the Clause stand part of the Bill.

Mr. Hordern: I hope the Financial Secretary to the Treasury will do us the honour of giving us as short and succinct an explanation of this Clause as did the Solicitor-General a few moments ago.
I understand that the Clause arose because of a decision in the courts in the case of a foreign resident bank which had invested in Government securities covered by Section 195 of the Income Tax Act, 1952. I should be grateful if the Financial Secretary could confirm that that was the reason why this Clause arose. In that case the Revenue suggested that moneys deposited with the bank in the course of its ordinary banking business could be said to be borrowed for the purpose of acquiring the securities within subsection (2) of Section 436.


That view was rightly rejected by the Commissioners. It seems that this Clause is an attempt to prevent borrowing for this particular purpose, and we see no objection to it, especially as by subsection (11) there is no element of retrospection in it.
I should be grateful if the Financial Secretary would confirm that these views are correct.

Mr. MacDermot: It is correct that the occasion of the Clause was a decision— in fact of the Special Commissioners. The Revenue did not think it right to appeal to the courts. The decision was based on the wording of what is now Section 436 of the Income Tax Act, 1952.
I would not put the object of the Clause as being that we want to prevent bankers and others dealing in securities from borrowing in order to invest in these securities. All we want to provide is that, when they do, they do not get a double advantage and that the interest which they pay on moneys they borrow in these cases they shall not be able to deduct as expenses in arriving at the profits in addition to getting the tax-free advantage of exempt securities. That was the intention of the original provision in the 1940 Act re-enacted in 1952. But it was worded in this way, so that one paid only on moneys
borrowed for the purpose of acquiring the securities.
Obviously, when a banker is carrying on a business with many funds being lent to it and other funds being lent out, it is difficult in that flow to identify a particular borrowing of money with a particular relending.
Therefore, the practice the Revenue adopted from the start—and which everyone has accepted until now—was that provided they applied the disallowance, to the equivalent amount of borrowing everyone was satisfied, but it did not satisfy the strict wording. The Clause links the matter, we hope effectively, to the original intention, and to what has been the practice ever since 1940.

Question put and agreed to.

Clause ordered to stand part of the Bill,

Clause 23 ordered to stand part o] the Bill.

Schedule 11.—(AMENDMENTS OF CORPORATION TAX ACTS.)

Mrs. Thatcher: I beg to move Amendment No. 89, in page 66, line 33, to leave out from the beginning to the end of line 48 on page 67.
This Amendment concerns life assurance business, and as I understand that the Chief Secretary will reply may I make it quite clear to him that, although we have tabled the Amendment to delete the paragraph, what we are really asking him to do at the moment is to reconsider it in the light of what I shall say, with a view, perhaps, to bringing forward something different on Report.
The paragraph deals with the amount of franked investment income which can be set off against Schedule F liability on dividends to shareholders. It will take a moment or two to explain, because it is a rather complicated matter. There are three positions with regard to this. There is the one that exists now, there is the one which the Government suggest, and there is the third possible one which would be a compromise, rather different, perhaps, than either.
The Chief Secretary will know that at present the taxation of life assurance companies is based on the recommendations of the Royal Commission of 1920. It is based on very clear principles, and the whole thing represents a coherent system which hangs together and makes the whole of that part of the Act intelligible. The Chief Secretary will also know, if he looks up that part of the Act and of the Royal Commission's recommendations and evidence, that very considerable evidence was given on the taxation of life assurance companies by Mr. Furtado, whose name the right hon. Gentleman will know well, as I do.
Mr. Furtado was with the Inland Revenue, and later became a Special Commissioner. He perhaps knew more than anyone else about life assurance work and the taxation of life assurance companies. Having seen his evidence several times, I am quite convinced that the principles there enunciated were correct, and, indeed, they have been held to be correct for a very long time.
I stress this point, because I believe that the present paragraph casts doubt on those principles and introduces a completely different set of principles by a


side wind. I do not believe that it is right to undermine a system which has stood the test for a very long time by a kind of minor paragraph in a Schedule to a Finance Bill. I am sure that the right hon. Gentleman will agree that the evidence presented by Mr. Furtado could not have been presented by a better person, and that the system is still as it was then. It was imported into the 1965 Finance Act when the calculations were changed to the Corporation Tax system, but the principles are still the same.
11.15 p.m.
Under that particular system, which is the one we still have, we have in relation to investment income a system known as top slicing which has made them similar to commercial companies. An ordinary trading company which has investment income can set off the franked investment income against dividend tax on dividends distributed to shareholders. As of now life assurance companies can also do that. Even under the Chief Secretary's recommendations certain of them would continue to do that.
There are two ways of taxing a life assurance company. One is on its investment income minus management expenses and the other is on an ordinary Case I assessment under Schedule D. At the moment, and even under the right hon. Gentleman's recommendations, if the second basis of assessment were adopted, the Case I, Schedule D, we could still get top slicing in respect of franked investment income. It would seem very ironic that under the right hon. Gentleman's recommendations the moment that a company chose the alternative basis of taxing for life assurance companies the power to top slice would apparently go.
There is also the case of life companies which would consist partly of non-participating funds when all the profits would by definition belong to the shareholders and not to the policy holders. There again there would be top slicing which would mean that the company could set off franked investment income against Schedule F liability on dividends and it could take as much franked investment income as was necessary to do that. This conclusion is entirely consistent with the system of taxing which has reigned for a very long time.
The actual reference to the Royal Commission relevant in this case is paragraph 524, which said:
In the case of a company transacting 'ordinary' business only, the profit that accrues to the proprietary body may be regarded as being part of the income which is taxed in the form of interest.
That makes quite clear that top slicing was not merely permitted, but was essential to the system of tax on life assurance companies inherent in that set of principles there laid down.
The position at the moment is that we have top slicing in life assurance companies as in ordinary commercial companies. It seems that the Chief Secretary does not like that system and has, therefore, put down a completely different one in paragraph 2. The trouble about the new system is that it imparts a completely new set of principles into the taxation of life assurance companies and casts doubt on the system which has been there for a very long time and will introduce anomalies and inconsistencies into that system. The Chief Secretary is proposing that top slicing should cease and something else should take its place.
From his knowledge of taxation of life assurance companies, the right hon. Gentleman will know that usually there is a division of profits between shareholders and policy holders from time to time, a division which goes as to 10 per cent. to the shareholders and 90 per cent. to the policy holders. The shareholders have the right to say how much will go to the policy holders because it is an arm's length transaction and this is a way of increasing the benefits to the policy holders.
I believe that what the Chief Secretary has done is to say that because there is that normal division of profits, 10 percent, to shareholders and 90 per cent. to policy holders, there must be a division of franked investment component of that profit in exactly the same proportion and go on to say that because the profits are divided in that proportion he will divide the franked investment income in that proportion. I know of no principle which says that because one divides profits one has to divide the components of profits in exactly the same proportion. If that is his thesis, he is saying that 10 per cent. should be deemed to belong to the shareholders and to be available for set off against the liability.
I do not wholly go along with the right hon. Gentleman, but, if that is his thesis, he then contradicts it in a later part of this paragraph. He has divided on the basis of profits, but what he did in last year's Finance Act and what he has done in this paragraph is parallel with that division on the basis of profits. He has imported another division which goes, not on the basis of profits, but on the basis of the size of funds. Size of funds bears no relation to profits. There can be a general annuity fund which gives practically no profit.
These two different systems of apportionment cannot run side by side in any rational system. If the right hon. Gentleman is to go on his thesis of 10 per cent. belonging to the shareholders, there must be amendments to last year's Finance Act: Schedule 5, paragraph 9, of last year's Act must be changed and the apportionment on size of funds must go.
At the moment, there are two systems —the old system, which has stood the test of time for a long period, and this new one, which I believe has the seeds of inherent contradiction even within itself and of which the least possible compromise would be to amend last year's Finance Act. There would be a third possible compromise, which I understand that the life offices have already put to the Chief Secretary and which would be entirely consistent with the general principle of the taxation of life assurance companies. This would be much too complicated for me to try to explain. I would not dream of doing so at this time of night.
In any event, I know that the Chief Secretary has had details of it. He and I, quite apart from the fact that we may differ on some of the political aspects of taxation, have a respect for certain taxation principles. Whatever system one moves to, there must be a set of principles which can be recognised. The right hon. Gentleman is confounding the old set of principles quite casually in a way which is unforgivable and which will throw the whole taxation and life assurance business into confusion.
I hope that I have said enough to persuade the right hon. Gentleman to take it back and reconsider it in conjunction with the life offices to see if we can get some kind of compromise, if

he will not accept top slicing, which will be consistent with the principles on which the taxation of life assurance business is based.

Mr. Diamond: I am grateful to the hon. Lady the Member for Finchley (Mrs. Thatcher) for explaining with great clarity the purpose of the Amendment and particularly for prefacing her explanation by saying that the form of the Amendment, which leaves out any alternative proposal, deliberately leaves it out so as to give an opportunity for discussion rather than with the intention deliberately to leave the matter permanently open, which would cause difficulties. I am grateful to her. I understand her purpose completely.
The hon. Lady, similarly, will understand that this is a matter on which considerable care and time have been spent. I should be most happy to listen direct to the representations, because it is a most important field of our activities and it is essential that those conducting these important operations should feel that they have access to Treasury Ministers, who are most happy to consider their point of view and their proposals. The hon. Lady has explained that the provision which she seeks to raise in discussion moves on the principle of sharing this valuable commodity —the franked investment income—on the basis of the distribution of profits made by the company itself. That seems to me a commonsense way of making an apportionment on which there cannot be a precise rule and guidance given by any Body —with a capital
"B"—which considered the matter in advance of this aspect of franked investment income. That seems a very sensible way of dealing with the matter.
The alternative method proposed by the companies does not seem equally appropriate. The hon. Lady has said, I think, that she sees the point in this and is pleading for consistency. I share her desire that we should be completely consistent. She has referred to certain paragraphs which she says are inconsistent with the paragraph in the Schedule which we are now discussing. I certainly give her my ready and immediate undertaking to look at the other provisions which she says are inconsistent. Obviously, I could not have a view on that at the moment. I am grateful to the


hon. Lady for drawing my attention to them.
I shall readily consider them but, as she said, the purpose of raising this matter was for discussion. We must have something in the Bill and I hope that the Opposition will be good enough to give us this provision.

Mrs. Thatcher: I am most grateful to the Chief Secretary. It is a most unusual case in which I have the experienced Inland Revenue witness on my side, and I hope that his evidence will speak to the Chief Secretary.
I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mrs. Thatcher: I beg to move Amendment No. 124, in page 70, line 8, at the end to insert:
Provided that nothing in this or subparagraphs (3) or (4) below shall be construed in such a manner as to make a company a close company which but for those provisions would not have been such a company.
This is a short, probing Amendment affecting, in particular, paragraphs 5(2) and (3) of the Schedule. I believe that they are meant to be relieving sub-paragraphs in that they are intended to make the definition of shares beneficially held by the public in relation to close companies slightly wider in certain specific cases than it is at the moment.
One point has been put to me upon which I seek the Chief Secretary's assurance. Paragraph 5(2) says:
Shares shall be deemed to be beneficially held by the public if, and only if, subparagraph (3) below so provides, …
When one looks at sub-paragraph (3) to see what are the conditions which "if, and only if," will make the shares beneficially held by the public, one sees that there are three. The first is that they shall be deemed to be beneficially held by the public if held by a resident company which is not a close company.
The problem that has been put to me in view of the words "if, and only if," is, "What happens if the shares are held by a company which happens to be a close company?" There are times when companies can move in and out of the close company provisions. One company may not know if a shareholder is a close company or not. The provisions say that

the shares shall be deemed to be beneficially held by the public if they are held by a company which is not a close company, and the point put to me is, "Does the converse apply?" Are they not beneficially held by the public if the company which holds the shares happens to be a close company?
I do not think that that is the case, because it looks to me as though those provisions under sub-paragraph (3) are alternative, and that only one of them need be satisfied. Therefore, it may be that the shares could be held by a close company and still be beneficially held by the public, provided, for example, they are not comprised in a principal member's shareholding.
11.30 p.m.
There is one final point which perhaps the right hon. Gentleman will look into. It would be possible for a principal member to hold shares privately in a close company which happened to invest in the original company which we are considering. Would that then make that company a close company when it is not a close company now?
In order to cover this position, I attempted to raise a protective Amendment, believing this to be a relieving provision, which would make it certain that nothing in the Schedule should be held to construe a company as a close company which is not a close company at the moment.
I should be grateful if the right hon. Gentleman would look into this. If he cannot answer now, perhaps he can look into the matter and later I can make it clear to the Committee, possibly by Question and Answer because sometimes it is complained that we raise matters which are answered in letters which the rest of the Committee does not see.

Mr. Diamond: It goes without saying that the hon. Lady was quite right in her construction of this paragraph. Subparagraph (b) is there for the purpose of reclarification. Then she asked whether, on that assumption, it was certain that other things followed having regard to the drafting. When an issue of this kind comes up, I do not think it appropriate for anyone to attempt an immediate answer. It requires the most careful consideration.
I understand what the hon. Lady has in mind and the premise on which she asked the question. It is a good premise. I understand that she would obviously want another opportunity for considering what we have to say about it. In these circumstances, I ask her if she would be good enough not to press the Amendment. I undertake to consider, with the help of the written word, what she has said and provide appropriate means—either by way of Question and Answer or a mention at a later stage—to satisfy her that we have given the matter careful consideration.

Mrs. Thatcher: I am obliged to the right hon. Gentleman.
I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Hordern: I beg to move Amendment No. 30, in page 72, line 18, at the end to insert:
9. In section 74(2) of the Finance Act 1965. leave out '£4,000' and insert '£6,000". In section 74(3)(a) of the Finance Act 1965 leave out '£13,000' and insert '£19,500'. Leave out '£10,000' and insert '£15,000'. Leave out' £7,000' and insert' £10,500'. In section 74(3)(b) leave out '£4,000' and insert '£6,000' and leave out '£3,000' and insert '£4,500'.
The hon. Member for Heywood and Royton (Mr. Barnett) will have observed that this Amendment is not entirely dissimilar from one he moved with such eloquence last year. We were surprised then to find that he was unable to persuade himself of the force of his argument and voted against his own Amendment. We trust that this year we find him in a more rational frame of mind. We make no apology for introducing a similar Amendment again.
The Amendment seeks to alleviate what at present is an intolerable burden on small family close companies. We feel on this side of the Committee that there is plenty of evidence that the Government have no sympathy for such companies. They are not the sort of companies and the directors are not the sort of people for whom the Government have much sympathy. They tend to escape standard categories of classification and a number of them conduct business in what I suppose the Prime Minister would

endearingly describe as "candy floss", although many export a good deal of their production.
Our concern here is to make it possible for the small family type businesses to grow and flourish. The Amendment seeks to increase the maximum remuneration allowed to the first director from £4,000 to £6,000 per annum and to allow the other three directors a maximum of £4,500 each.
The figure of £6,000 is what we would regard as a much more realistic figure to allow a director of this kind of company in current conditions. It is a reasonable though not perhaps over-generous figure for a full-time director, which is what we are considering. If the services of a useful part-time director are to be gained, that too is not an unreasonable figure.
We stress, as the hon. Member for Heywood and Royton did last year, the need to encourage the young executive whom a lively board would wish to encourage, not merely by rewarding him a higher salary, but by allowing him to subscribe for more than 5 per cent. of the equity. This is the best possible kind of incentive. It not only has the virtue of retaining his services, but gives him a real stake in the future prosperity of the company. Yet, to that kind of person, £4,000 is not wholly an appropriate level and £6,000 is much nearer the mark.
I turn now to the arguments which I think the Chief Secretary will raise. He will say, I am sure, that the amounts allowed under Profits Tax was only £3,000 and that, since then, the Government have made it £4,000, having originally offered only £500. Indeed, with that impeccable logic of his, he once referred to this as a 100 per cent. improvement on the original figure. There is no comparison in reality to be made with Profits Tax.
I want to quote from HANSARD of 3rd June, 1965, when you, Sir Eric, so clearly drew to the attention of the Committee the following circumstances:
As I have said on other occasions, we do not want to draw any analogy with what was appropriate in the case of Profits Tax and argue that the same thing should apply to Corporation Tax. It is pact of the basic philosophy of this part of the Bill that we are getting rid of both Profits Tax and Income Tax for corporations, and introducing a new


separate Corporation Tax to which different principles shall apply.'—[OFFICIAL REPORT, 3rd June, 1965; Vol. 713, c. 2097.]
No one could put the case more plainly than you did, Sir Eric, on that occasion. It would be difficult for the Chief Secretary to dispute that extremely clear account of the situation.
But under Profits Tax and Income Tax —the old basis—there was an allowance of 41 per cent. on companies on the directors' remuneration. This was an allowance of only 15 per cent. for Profits Tax. If the right hon. Gentleman tries now to compare that 15 per cent. with the Corporation Tax rate of 40 per cent. he is talking arrant nonsense. Profits Tax itself had an exemption limit of £2,000 which does not exist under Corporation Tax.
Again, in comparing the director controlled companies under Profits Tax and the full range of companies now considered to be close, the right hon. Gentleman cannot compare like with like. There must be thousands of companies now caught in the new category of close companies which would not have been caught under the old description of director-controlled companies.
No doubt the right hon. Gentleman will have some remarks to make about the cost of the Amendment. Last year, the hon. Member for Heywood and Royton, in speaking to his Amendment, said that the cost of implementation of his proposal to increase the maximum remuneration allowed from £4,000 to £5,000 would be about £5 million. We are proposing an increase from £4,000 to £6,000 for one category and the total under this Amendment would be £19,500 as compared with the cost under his Amendment of £20,000. There cannot be much difference in cost. If the figure of £5 million was accurate, much the same would apply to this Amendment.
We would like to know what allowance has been made against that figure for the extra Income Tax and Surtax which the Revenue would otherwise gain. If, as I suspect, there would be little loss to the Treasury, it is impossible to see how the right hon. Gentleman can employ the final argument which I am sure he will use—that this is not the right time to do it.
The Committee will remember the old argument that Chief Secretaries always

give us, that it is never the right time to introduce any relief from tax, least of all on close companies. Judging by the right hon. Gentleman's remarks earlier today, his idea of a vista for the country is one of a bed of nails. He always looks as if he is only too delighted to occupy that position, but it is not one about which the rest of the country need have very much enthusiasm.
Therefore, I hope that the right hon. Gentleman will address himself to the points in the Amendment and let us have an answer particularly about cost, which he did not do last year when addressing himself to his hon. Friend's Amendment.

Mr. Diamond: I agree with a good deal of what the hon. Member for Horsham (Mr. Hordern) has said, but not with everything. When he referred to the bed of nails I thought that I would agree with him completely. I agree with the thought of going to bed, if not with the idea of a bed of nails. I am sure that we shall meet each other's point of view on this.
Therefore, I say shortly, without raising the temperature, that the hon. Gentleman misjudges my right hon. Friend, my colleagues and myself if he thinks that we are not interested in the welfare of companies be they closed or open. We are interested in their enterprise, their welfare, and, as Treasury Ministers, their results, and, in our responsible position at the receiving end, we hope that they flourish.
The first question is whether this is the appropriate time to make the increase proposed. The second question is: what is the cost?, and perhaps I may answer that immediately. The cost would be approximately—it is not possible to be other than approximate—£20 million in a full year.

Mr. Hordern: Does that include the Income Tax and the Surtax which would necessarily flow to the Exchequer?

Mr. Diamond: It would be wrong for me to give an answer when I am not sure. I imagine not, but I cannot give a positive answer. I hope that the hon. Gentleman will allow me to look into it. It is safer to say not, and by the look of the thing I would say not. I was dealing with the question of cost; the hon.


Gentleman asked me a question, and it is my privilege to answer his question.
There is no need for me to go into the basis or the general principle. The general principle is accepted. The hon. Gentleman is merely suggesting not a cancellation or a variation of the principle but an increase in amount. There is a good deal of common ground between us. My right hon. Friend has never said—my hon. Friends are aware of this—that these figures should remain for all time. We made that clear a year ago. There has been a considerable improvement in the figures, of course. Whether Profits Tax is an exact parallel or not, it is an interesting one at all events. The minimum figure was £3,000, as the hon. Gentleman remarked, and it is now £4,000. The hon. Gentleman proposes to put it up to £6,000. If there were three, for example, he proposes £15,000. The figure was £7,000, now it is £10,000, and the hon. Gentleman is proposing £15,000.
The first point that I want to make is that we are not inflexible about it. There have been considerable improvements. We are not relying on the argument of cost. We are relying very heavily—I might almost say exclusively—on the argument, which I stress, that this is certainly not the time to pick out, and to be seen to be picking out, in a way which would be completely misunderstood a group of individuals for special treatment by increasing

the allowable remuneration. There is nothing to prevent them from having their remuneration at the moment. The only thing provided in the Act is that the remuneration beyond a certain figure is not allowable for tax purposes. It does not prevent it from being treated as what it would be in the same way as dividend income. So there is no question of preventing remuneration from being given.

However, there would be an act taken by the Government of deliberately picking out individual directors who are earning up to allowable limits on these figures and increasing their limits by 50 per cent., and doing it at a time when there is severe restraint and restriction, asked for by, and to an extent imposed on, other members who are working, I am sure, as hard as they can and as productively as they can and who must be considered at the same time.

I want to make it quite clear against that background that I could not possibly recommend the Committee to accept the Amendment.

Mr. Hordern: We have no confidence that the Government will ever feel that it is the right time to make this change, and I can, therefore, only invite my hon. Friends to join me in the Division Lobby.

Question put, That those words be there inserted: —

The Committee divided: Ayes 105. Noes 166.

Division No. 353.]
AYES
[11.45 p.m.


Allason, James (Hemel Hempstead)
Eden, Sir John
Jopling, Michael


Awdry, Daniel
Elliott, R. W.(N 'c' tle-upon-Tyne, N.)
King, Evelyn (Dorset, S.)


Baker, W. H. K.
Eyre, Reginald
Kirk, Peter


Bell, Ronald
Fortescue, Tim
Lambton, Viscount


Bennett, Sir Frederic (Torquay)
Gilmour, Ian (Norfolk, C.)
Lloyd, Ian (P'tsm'th, Langstone)


Berry, Hn. Anthony
Gilmour, Sir John (Fife, E.)
Macleod, Rt. Hn. Iain


Biffen, John
Glover, Sir Douglas
Maddan, Martin


Bossom, Sir Clive
Gower, Raymond
Maude, Angus


Braine, Bernard
Grant-Ferris, R.
Mawby, Ray


Brewis, John
Gresham Cooke, R.
Maydon, Lt.-Cmdr. S. L. C.


Brinton, Sir Tatton
Gurden, Harold
Mills, Peter (Torrington)


Brown, Sir Edward (Bath)
Hall, John (Wycombe)
Mills, Stratton (Belfast, N.)


Bruce-Gardyne, J.
Hall-Davis, A. G. F.
Miscampbell, Norman


Buchanan-Smith,Alick(Angua,N&amp;M)
Harrison, Col. Sir Harwood (Eye)
Monro, Hector


Buck, Antony (Colchester)
Harvey, Sir Arthur Vere
More, Jasper


Campbell, Gordon
Hawkins, Paul
Morgan, Geraint (Denbigh)


Channon, H. P. G.
Heseltine, Michael
Morrison, Charles (Devizes)


Chichester-Clark, R.
Higgins, Terence L.
Munro-Lucas-Tooth, Sir Hugh


Cooke, Robert
Hiley, Joseph
Murton, Oscar


Costain, A. P.
Hill, J. E. B.
Nicholls, Sir Harmar


Crosthwaite-Eyre, Sir Oliver
Holland, Philip
Nott, John


Dance, James
Hordern, Peter
Onslow, Cranley


Davidson,James(Aberdeenshire, W.)
Hornby, Richard
Osborn, John (Hallam)


Dean, Paul (Somerset, N.)
Hunt, John
Page, Graham (Crosby)


Dodds-Parker, Douglas
Irvine, Bryant Godman (Rye)
Percival, Ian


Doughty, Charles
Jenkin, Patrick (Woodford)
Pounder, Rafton




Ramsden, Rt. Hn. James
Temple, John M.
Wilson, Geoffrey (Truro)


Rossi, Hugh (Hornsey)
Thatcher, Mrs. Margaret
Winstanley, Dr. M. P.


Royle, Anthony
Tilney, John
Wolrige-Gordon, Patrick


Russell, Sir Ranald
van Straubenzee, W. R.
Worsley, Marcus


Scott, Nicholas
Vaughan-Morgan, Rt. Hn. Sir John
Wright, Esmond


Sinclair, Sir George
Wainwright, Richard (Come Valley)
Wylie, N. R.


Smith, John
Ward, Dame Irene
Younger, Hn. George


Stainton, Keith
Weatherill, Bernard



Stoddart-Scott, Col. Sir M. (Ripon)
Webster, David
TELLERS FOR THE AYES:


Summers, Sir Spencer
Whitelaw, Rt. Hn. William
Mr. David Mitchell and




Mr. Anthony Grant.




NOES


Abse, Leo
Fletcher, Ted (Darlington)
Mason, Roy


Allaun, Frank (Salford, E.)
Foley, Maurice
Millan, Bruce


Alldritt, Walter
Foot, Sir Dingle (Ipswich)
Miller, Dr. M. S.


Allen, Scholefield
Ford, Ben
Milne, Edward (Blyth)


Anderson, Donald
Forrester, John
Mitchell, R. c. (S'th'pton. Test)


Archer, Peter
Fowler, Gerry
Morgan, Elystan (Cardiganshire)


Armstrong, Ernest
Fraser, John (Norwood)
Morris, Alfred (Wythenshawe)


Atkins, Ronald (Preston, N.)
Galpern, Sir Myer
Morris, Charles R. (Openshaw)


Atkinson, Norman (Tottenham)
Gardner, Tony
Moyle, Roland


Barnett, Joel
Garrett, W. E.
Newens, Stan


Benn, Rt. Hn. Anthony Wedgwood
Gordon Walker, Rt. Hn. P. C.
Noel-Baker, Francis (Swindon)


Blackburn, F.
Gray, Dr. Hugh (Yarmouth)
Noel-Baker,Rt.Hn.Philip(Derby,S.)


Blenkinsop, Arthur
Greenwood, Rt. Hn. Anthony
Ogden, Eric


Booth, Albert
Griffiths, David (Rother Valley)
O'Malley, Brian


Braddock, Mrs. E. M.
Griffiths, Will (Exchange)
Oram, Albert E.


Bray, Or. Jeremy
Hart, Mrs. Judith
Orbach, Maurice


Brooks, Edwin
Haseldine, Norman
Orme, Stanley


Brown, Rt. Hn. George (Belper)
Heffer, Eric S.
Owen, Will (Morpeth)


Brown, Hugh D. (G'gow, Provan)
Henig, Stanley
Park, Trevor


Buchan, Norman
Herbison, Rt. Hn. Margaret
Peart, Rt. Hn. Fred


Buchanan, Richard (G'gow, Sp'burn)
Hooley, Frank
Perry, George H. (Nottingham, S.)


Callaghan, Rt. Hn. James
Horner, John
Price, Christopher (Perry Barr)


Cant, R. B.
Houghton, Rt. Hn. Douglas
Price, William (Rugby)


Carmichael, Neil
Howie, W.
Probert, Arthur


Coe, Denis
Hoy, James
Rees, Merlyn


Coleman, Donald
Huckfield, L.
Roberts, Albert (Normanton)


Concannon, J. D.
Hughes, Roy (Newport)
Robinson, W. 0. J. (Walth'stow, E.)


Crawshaw, Richard
Hunter, Adam
Rodgers, William (Stockton)


Crossman, Rt. Hn. Richard
Jackson, Colin (B'h'se &amp; Spenb'gh)
Rose, Paul


Cullen, Mrs. Alice
Jackson,Peter M. (High Peak)
Ross, Rt. Hn. William


Davidson, Arthur (Accrington)
Jones, J. Idwal (Wrexham)
Rowland, Christopher (Meriden)


Davies, G. Elfed (Rhondda, E.)
Jones, T. Alec (Rhondda, West)
Rowlands, E. (Cardiff, N.)


Davies, Ednyfed Hudson (Conway)
Kelley, Richard
Sheldon, Robert


Davies, Harold (Leek)
Lawson, George
Shore, Peter (Stepney)


Davies, Ifor (Gower)
Leadbitter, Ted
Silkin, Rt. Hn. John (Deptford)


Delargy, Hugh
Lestor, Miss Joan
Silkin, Hn. S. C.(Dulwich)


Dell, Edmund
Lewis, Ron (Carlisle)
Silverman, Julius (Aston)


Dewar, Donald
Loughlin, Charles
Snow, Julian


Diamond, Rt. Hn. John
Lyon, Alexander W. (York)
Taverne, Dick


Dickens, James
Lyons, Edward (Bradford, E.)
Tuck, Raphael


Dobson, Ray
McBride, Neil
Vartey, Eric G.


Doig, Peter
MacColl, James
Wainwright, Edwin (Dearne Valley)


Donnelly, Desmond
MacDermot, Niall
Walden, Brian (All Saints)


Driberg, Tom
Macdonald, A. H.
Walker, Harold (Doncaster)


Dunn, James A.
McGuire, Michael
Watkins, David (Consett)


Dunwoody, Mrs. Gwyneth (Exeter)
Mackenzie, Gregor (Rutherglen)
Whitlock, William


Dunwoody, Dr. John (F'th &amp; C'b'e)
Mackle, John
Williams, Alan (Swansea, W.)


Edwards, William (Merioneth)
Mackintosh, John P.
Williams, Clifford (Abertillery)


Ellis, John
Maclennan, Robert
Williams, Mrs. Shirley (Hitchin)


Ennals, David
MacMillan, Malcolm (Western Isles)
Willis, George (Edinburgh, E.)


Ensor, David
McMillan, Tom (Glasgow, C.)
Wilson, William (Coventry, S.)


Faulds, Andrew
McNamara, J. Kevin
Woof, Robert


Fernyhough, E.
Mallalieu,J.P.W.(Huddersfield,E.)
Yates, Victor


Finch, Harold
Manuel, Archie
TELLERS FOR THE NOES:


Fitch, Alan (Wigan)
Mapp, Charles
Mr. Walter Harrison and


Fletcher, Raymond (Ilkeston)
Marquand, David
Mr. Joseph Harper.

Mr. Hordern: I beg to move Amendment No. 85, in page 72, line 18, at the end to insert:
9. Provided that the total loan capital of a company does not exceed 50 per cent. of its issued share capital and reserves, paragraph 9(1)(a) of Schedule 11 to the Finance Act 1965 shall not apply to so much of any interest or other consideration as represents a reasonable commercial consideration.

This Amendment is designed to ease the extremely harsh provisions which at present obtain on loans by directors of close companies. We come, once again, to the essential difficulty the Government are in with regard to these close companies. If they are allowed to operate on normal commercial grounds then these grounds may be used as a


means for reducing the burden of taxation, so as always attempts are made to block those who would take advantage of these grounds and in doing so the close company is prevented from operating in a normal commercial way.
This is particularly devastating and harmful to the small family company which may, in a time of credit squeeze or economic difficulty, have no other sources from which to derive its funds. At a time of rapid expansion, particularly of small growth companies, the only means by which these funds can be obtained, apart from raising funds from a bank if it is possible to do so, is for a director of the company to advance the loan.
Yet by paragraph 9(1,a) of Schedule 11 to the Finance Act, 1965, loans to close companies made by a director who owns 5 per cent. or more of the equity in that company are treated as a distribution and taxed accordingly.
We are seeking, in this Amendment, to allow interest at normal commercial rates, but at no specially enhanced rate, to become an allowable deduction for Corporation Tax provided always that interest on such loans shall be disallowed if the total loan capital exceeds 50 per cent. of the issued share capital of the company.
We put forward this Amendment as a reasonable compromise between what the Government quite clearly seek to do to protect the Government's interest in so far as dividend stripping is concerned and the essential interest of such close companies in raising money by loans from directors. It is what we feel to be a useful compromise, and it is in that spirit that we advance the Amendment.

12 m.

Sir Eric Errington: I would like, if it is not interfering too much with the sort of Irishmen's fight which has been going on between the Front Benches, to say a word or two in support of this Amendment because of the serious effect on small close companies which at the moment is inevitable.
Very often, as has been said, these companies are formed with a modest capital and they need loan money to be able to progress to a position where they can get development money on a much larger

scale, either from merchant banks, insurance companies, or by other means.
I would like to quote an example which seems to me to put the position clearly and to indicate the lengths to which these things can go. The testator died and left benefit under his will to a relative who subsequently became a participant and this relative was also a person who, besides benefiting under the trust, was also a director of the company to whom the money was lent.
The effect of these facts seems to be that for the purposes of Corporation Tax the interest due on the money advanced by the trust is not allowed as a deduction before the amount of tax to be paid is arrived at. Even if it is the wish of the Government—which I hope it is not —to make things as difficult as possible for small companies, I cannot believe that there is any justification or fairness in not allowing a deduction in those circumstances.
Because of the way in which the 1965 Act is drafted it is difficult to deal with this situation, but the precaution provided in the Amendment—
does not exceed 50 per cent. of its issued share capital"—
will bring some relief to those who, to their amazement, and because of a continuous process of obscure legislation, find themselves in a situation in which they are made to suffer without gaining the benefits to which they are entitled, on any basis of fairness.

Mr. Richard Wainwright: I would like briefly to associate myself with the Amendment in the spirit in which I happened to make representations from outside the House during the passage of the 1965 Bill, and at least as much on grounds of public interest as on grounds of hardship to individual proprietors and associates of companies.
As the Committee knows, the public interest is that large sums of accumulated private savings used to be held on loan account, sometimes almost on current banking account, with private companies, by their proprietors and associates. The headlong zeal with which the Government have tried to stop this as a means of avoidance has resulted in the shaking out of a large part of these savings, and we know that when savings are suddenly taken out, especially at a


time of credit squeeze, by no means all are effectively reinvested. Some are spent, and some are diverted in other ways.
It may be that most of the damage has been done during the last two years. Close companies which have been at all reasonably advised have shed these loan accounts and wherever possible have called in other means of financial support, but it may be that some of this traditional form of saving has survived this process and to the extent that there is still a volume of private savings held by close companies I hope that the Government will accept the Amendment and prevent further damage to the overall savings position.

Mr. Diamond: There is no need for me to explain the principles behind this matter because the Committee is well aware of them and of the position. I am grateful to the hon. Member for Horsham (Mr. Hordern) for making it clear that the problem is to draw a sensible dividing line between complete freedom for the close company operator to operate at the expense of the Revenue and sensible provisions under which finance can be provided.
I have listened carefully to the proposals that have been made, remembering that this is not the first time that we have had this discussion, and I have had the most careful inquiries made. If, on these two scores, I had been convinced that there was a substantial measure of hardship, I would have been willing to see whether we could not, if necessary, go too far the other way to meet a need which, it was alleged in Committee, was not being met.
But that has not happened. The hon. Gentleman said that most of the damage may have been done in the past two years. He was, in fact, saying that any hardship would have been created and would have come to light in those two years. From the information I get in total form from the Revenue—and I wish to make it clear that nobody knows the precise details but only the overall position—I am sure that there is no real evidence of hardship being created by this provision.
We do not believe that there is a substantial case for the proposal. I recognise the weight of the argument, but it is not

supported by facts. There seems to be no real difficulty in providing finance in a sensible way and, in these circumstances, I cannot recommend acceptance of the Amendment.

Mr. Hordern: My hon. Friends and I are disappointed with the right hon. Gentleman's reaction to the Amendment, particularly in view of the evidence that has been presented to the Committee about the way in which these companies suffer from the severe penalties put on directors who provide loans to close companies.
The Amendment seeks, in a reasonable way, to provide some midway position; between what are the essential and proper Government interests that must be protected and the requirement of these small family companies for director finance. On the assurance that we will do our best to revert to this subject on Report, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Hordern: I beg to move Amendment No. 118, in page 72, in line 18, at the end to insert:
9. In section 74 of the Finance Act 1965 the following new subsection shall be inserted: —
'(4A) For the purposes of this section, any director of a close company who dies in office during an accounting period shall be regarded as having held office for half that period, unless he is replaced during that same period by a new director whose duration of service during that period, together with that of the deceased director, equals or exceeds half that period'.
This subject was first introduced by my hon. Friend the Member for Belfast, North (Mr. Stratton Mills) when, last January, he asked the Chancellor of the Exchequer
… whether he is aware that the Inland Revenue have been disallowing the remuneration of whole-time directors in close companies as an expense before Corporation Tax where the director dies within six months of the commencement of the financial year, on the grounds that the director was not a full-time employee for more than 50 per cent. of the company's trading year; and what action he will take.
The Chief Secretary, in a Written Answer, replied:
Representations on this point are being taken into account, along with the other representations my right hon. Friend is receiving


in the Budget review".—[OFFICIAL REPORT, 31st January, 1967 Vol. 740, c. 55.]
This question has still not been answered. If a director of a close company dies in the first half of the company's financial year, he is held to be a part-time director and hence the taxation of the remuneration of the other directors of the company is affected. It may not be desirable for a director to be appointed almost immediately after the death of another director, with the penalty that if he is not, the other directors are penalised.
It is surely bad enough that directors' salaries are limited for fear of tax evasion in the way they are. But to reduce them because of a wholly unforeseen event outside their control seems to be carrying events too far. My hon. Friends and I, and my hon. Friend the Member for Belfast, North—who has asked me to apologise for his absence— expect a proper reply from the Government tonight.

Mr. MacDermot: One can judge the merits of the Amendment only against the background of the principle underlying the present rule governing the allowances. Obviously, it would be absurd to give the full allowance, for example, where a director worked full time only for one week or one month in an accounting period. Equally, at the other extreme, it would be unfair to deny the allowance if he worked for nine or ten months in the year.
Two alternative approaches are possible. One would be to try to apportion the allowance for the whole year according to the amount worked, in twelfths, allowing one-twelfth for each month, and the other would be that which was done under the legislation which we introduced to follow the precedent of the Profits Tax rule, giving the full allowance wherever the relevant director worked full time for more than half the accounting period. The effect is that if he dies or retires, say, after five months' full-time work in the year, no allowance is earned. Equally, if he dies or retires after seven months, a full year's allowance is given. This works on the swings and roundabouts basis, sometimes to the advantage of the Revenue and sometimes to its disadvantage, and it is simpler than having an application of a provision based on twelfths.
So much for the general rule. The Amendment suggests departing from that swings and roundabouts approach where a director does not retire voluntarily or due to illness but dies in harness after working for less than half the accounting period. By the way in which the rule operates and is phrased, there still can be a full year's allowance in those circumstances, provided that a successor is appointed within six months of the death. One is then allowed to aggregate the time of his service with the time of his successor, and provided that a total of six months' service is done by him and his successor, the full year's allowance is earned. We are considering the case where a director dies in harness and the company does not appoint a successor after a period of six months, which would surely be adequate for the company to find a successor. It is surely a case in which it is fair to say that the company deliberately decides not to appoint a successor.
Reverting to the swings and roundabouts approach as a general rule, I do not see why the position should be any different in that case from the position where a director retires, perhaps similarly after five months' service, and again the company decides not to appoint the successor. It seems to me that the merits of the case put forward in the Amendment are not sufficient to justify a change in the law which would be a definite departure from the general rule which applies.

Mr. Hordera: If I may say so, with great respect, that is a thoroughly "wet" reply. The hon. and learned Member does not seem to realise that we are not interested in the roundabouts. We are interested only in the swings. Where directors of close companies find themselves in this position, we think that this would be a worth-while step to take. To say that a company must appoint another director within six months or suffer a penalty of higher taxation, is a ludicrous argument.
Once again, I shall ask leave to withdraw this Amendment, but on the clear understanding that we shall return to it on Report. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

12.15 a.m.

Mrs. Thatcher: I beg to move Amendment No. 136, in page 72, line 18, at the end to insert:
9. In paragraph 5(b) of Schedule 18 to the Finance Act 1965 after the words 'the trustee or trustees of any settlement' there shall be inserted the words 'other than the trustees of any settlement established for charitable purposes only and registered under the Charities Act 1960'.
I hope that the Financial Secretary will consider this Amendment with a view to telling us something about it on Report if he cannot accept it now. The matter concerns debenture interest. As the hon. and learned Gentleman knows, the normal rule is that debenture interest is allowed in computing liability for Corporation Tax. The normal rule is altered with regard to close companies when a debenture interest would not be allowed as far as it was a distribution to a director or to an associate of a director.
I have a very special case concerning charitable trusts. It arises in this way. Two directors made very extensive charitable settlements for the benefit of the employees of a company, and other settlements for general charitable purposes. Those settlements were made for charitable purposes only, for registered charities. It so happens that when one considers paragraph 5 of the Eighteenth Schedule to the Finance Act in conjunction with paragraph 9 (1, a) of the Eleventh Schedule to the Finance Act, one finds that trustees of a charitable settlement set up by the director of a close company are to be regarded as associates of that director. Because those trustees are regarded as associates of that director, debenture interest would be treated as a distribution. This means that the charity suffers very considerably indeed. They are charities which are wholly for charitable purposes and are registered charities.
We therefore proposed an Amendment which would provide that debenture interest which goes to settlements made under those circumstances would not be a distribution for the purposes of this provision. This would be a tremendous help to the charity and I hope that the Financial Secretary will consider the point. Last year, he made certain relieving provisions with regard to pension funds, and so I hope that this year he will make certain relieving provisions for

settlements which are set up for charitable purposes only.

Mr. MacDermot: The hon. Lady invited me to give a reply indicating a willingness to consider this matter further before Report. I would not wish to encourage her particularly in that form, but rather to say that I would be willing, as I was last year, to consider the circumstances of any case that the hon. Lady brought to my attention so that we could examine further whether we think any alteration of the law would be justified and would be possible in a way that could be contained.
I must say that the Amendment as it stands at the moment would be too wide, and we could not accept it. I understand that there could be what I may call perfectly genuine cases of the kind which she is describing, but equally I am afraid, unfortunately, it is the experience of the Revenue that attempts are from time to time made to use charitable status for purposes of tax avoidance.
One does not have to be of a peculiarly suspicious mind to envisage a case where a person could make a trust which was a charitable trust and then arrange for the funds to be provided back by way of loan finance to the company in a way in which one could take the realistic view that the settlor had not relinquished control, and that this was being used as machinery for avoiding the rules that we have just been discussing.
Without going into detail, the intention is that one cannot accept the Amendment as it is. Nevertheless, the hon. Lady said that she has a particular case in mind, and if she cares to let me have particulars, I will, without any kind of undertaking, willingly look into it.

Mrs. Thatcher: I will willingly respond to the hon. and learned Gentleman's invitation, and now beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 147, in page 73, line 18, leave out 'repaid' and insert 'paid'.—[Mr. MacDermot.]

Mr. MacDermot: I beg to move Amendment No. 148, in page 73, line 39, to leave out sub-paragraph (3).
With this Amendment I suggest that it might be convenient to discuss Amendment No. 155. The two are related.
These Amendments remedy a flaw in the Schedule relating to the procedure for recovering Income Tax and interest on it in respect of dividends and interest paid by companies. I am in a position to describe the matter at rather more tedious length if any hon. Member wishes me to do so, but perhaps it is already clear to hon. Members.

Amendment agreed to.

Further Amendment made: No. 194, in page 74, line 3, at end insert:

Adjustments at end of year

12. Where the amount of any tax payable in accordance with sub-paragraph (2) of paragraph 1 of the said Schedule 12 (adjustment at end of year) is agreed between the company and the inspector—

(a) the making of an assessment charging that tax, or an appeal against the assessment, shall not affect the date when the tax is due (that is to say, as provided by paragraph 5(1) of the said Schedule 12, fourteen days after the tax is so agreed), and
(b) the power of making an assessment under sub-paragraph (3) of the said paragraph 1 shall include power to make an assessment of the tax on that company if that tax, or any part of it, is not paid within the said fourteen days after the tax is so agreed (whether or not it has been paid when the assessment is made).—[Mr. MacDermot.]

Mr. MacDermot: I beg to move Amendment No. 150, in page 75, line 7, after 'distraint' to insert 'or poinding'.
This Amendment, Sir Eric, remedies a drafting slip. When we referred to distraint, we committed the grave error of overlooking the Scottish equivalent which, I understand, is called poinding.

Amendment agreed to.

The Chairman: I do not propose to call Amendment No. 167. I think that it would be more convenient if Amendment No. 134, which could have been discussed with it, should be called separately when we come to Clause 34.

Mr. Iain Macleod: I am much obliged.
Question proposed, That this Schedule, as amended, be the Eleventh Schedule to the Bill.

Mr. Hordern: I have one point on which I have been asked to get clarification. I recently told the hon. and learned Gentleman that I would raise it. It relates to paragraph 5 of the Schedule.

The question is whether an open company—a non-close company—can be a principal member for the purposes of sub-paragraph (6) of the paragraph.
On Second Reading, the Chief Secretary said:
Paragraph 5 of Schedule 11 therefore provides broadly that 'the public' are all the shareholders other than the five largest. That by itself should bring greater certainty.
In addition, there is a substantial concession, in that shares held by open companies are to be treated as being held by the public whether or not they form part of the five largest holdings."—[OFFICIAL REPORT, 2nd May, 1967; Vol. 746, c. 349.]
That is a very clear statement of intention which we all understand.
In addition, we have paragraph 2, on page 70, which reads:
Shares shall be deemed to be beneficially held by the public if, and only if, sub-paragraph (3) below so provides, and if they are not within the exceptions in paragraph (a), (b) or (c) of the said paragraph 1(3) (shares held by a director of the company or his associate or by certain other companies) or within the exception in sub-paragraph (4) below.
My interpretation is that sub-paragraph (6) does not affect the interpretation of a company beneficially held by the public as an open company under (a). It seems that sub-paragraph (6), the 85 per cent. test account, applied to an open company.
I provide two simple examples to make the dilemma clear. Suppose we have a case where there are four private shareholders owning 51 per cent. of a company and LCI. holds 35 per cent. Together, the holding would be 86 per cent. Would such a company be treated as a closed company or not? We should like to know what the purpose of sub-paragraph (6) is.
The second example is slightly more difficult. If a single shareholder holds 64 per cent. of the shares and under the normal interpretation being an open company, and the rest is held within the meaning of sub-paragraph (3), supposing that four open companies which between them hold 22 per cent. of the companies' shares, thus putting it just over the 85 per cent. limit, does that make it a closed company, and if so, why should it?
Perhaps the Chief Secretary will explain the purpose of sub-paragraph (6). This is a point to which we would like to return, but as there has been particular


dispute on the interpretation on these points the Committee would be glad to have his comments on them.

Mr. Diamond: The hon. Member said that he wants an answer to his specific question and is returning to the matter later. I can help best by giving a specific answer to the question of which he was kind enough to give me notice. The answer is, yes. The answer is that an open company or an approved superannuation fund can be a principal member so that its holding is taken into account for the purposes of sub-paragraph (6). From that follows the answer to all the other questions which the hon. Member has asked me.

Question put and agreed to.

Schedule, as amended, agreed to.

Mr. Iain Macleod: I beg to move, That the Chairman do report Progress and ask leave to sit again.
Clearly, the Chief Secretary must have got hold of the wrong brief. We cannot have a situation in which Treasury Ministers answer questions with such a simple word as
"Yes". I do not know what would happen if we went on like that.
Seriously, we have made remarkable progress, particularly as for reasons outside our control we started an hour late. The next obvious chunk of the Bill is Clause 24, dealing with Selective Employment Tax. I think that we should start a day on that.

The Chancellor of the Exchequer (Mr. James Callaghan): I am so overcome with astonishment and shock by hearing the Chief Secretary saying "Yes" after all this time, that I must agree with the right hon. Member for Enfield, West (Mr. Iain Macleod). We must have time for this almost unprecedented practice that the Chief Secretary has adopted to be

studied. He and I must have a private conversation before resuming progress.
I have been absent from the Committee, for which I apologise. I am sure that the Committee understands the reasons for that. I think that both sides of the Committee have done a remarkable job and that there has been great co-operation. I hope that the Opposition feel that the points made have been properly ventilated. The Committee has managed to get through a very great deal of work. We are grateful for the co-operation which has been shown. I know that my hon. colleagues who have carried the burden are most grateful for the co-operation.

Question put and agreed to.

Committee report Progress; to sit again this day.

LOCAL GOVERNMENT (MISCEL LANEOUS PROVISIONS) (LOCAL AUTHORITY VALUATION OFFICERS, LIMITATION OF FUNCTIONS AND CHANGE OF NOMENCLATURE, &c.)

Deferred proceedings resumed:

Mr. DEPUTY SPEAKER, pursuant to Order (Sittings of the House (Morning Sittings)), put forthwith the Question:—
That leave be given to bring in a Bill to make provision for any property owner whose property is threatened with compulsory acquisition by a local authority at fair market price to elect to have the fair market price assessed by an impartial district value employed by the Commissioners of Inland Revenue and not by an officer employed by the acquiring authority itself; to make provision for any officer who is employed by a local authority for negotiating and bargaining with property owners in his employers' interest to be styled a negotiating officer or, alternatively a bargaining officer and not a valuation officer and for other purposes.

Question negatived.

Orders of the Day — OCEAN ISLAND (THE BANABANS)

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Harper.]

12.32 a.m.

Mr. Bryant Godman Irvine: Having had the opportunity of listening to the detailed discussion in Committee on the Finance Bill of the United Kingdom, I now ask the Chief Secretary and the Financial Secretary to pay attention for a short time to the financial arrangements of a small community of 2,000 people in a small island measuring 29 miles by seven in the Fiji Group in the Pacific. I am sure that they will find that the problems there are of considerable interest to them, as, indeed, they are to the rest of the House.
These people are known as the Banabans. They are the owners of Ocean Island, which is part of the Gilbert and Ellice Islands Colony. About five years ago I had the good fortune to visit Fiji. There I had my attention drawn to, among other matters, the problems of the Banabans by the then Speaker, who is now Sir Maurice Scott. He and his partner have kept me in touch with the developments affecting this community over the intervening period.
In January of this year I had the opportunity of discussing with the Rabi Island Council in Fiji some of the matters which were then in its mind. The Chairman of the Rabi Island Council, Mr. Rotan, and his son, the Rev. Tebuke Rotan, have recently been here in London. I am delighted to learn from them that they feel that they have been greeted with the greatest kindness, that they have enjoyed their visit, and that the discussions that they have had with the hon. Lady, the Minister of State for Commonwealth Affairs and her Department were carried on in a very friendly way. So much so that they have asked me to express on their behalf, in accordance with the Rabi custom, their apologies for any discourtesies which may have crept in during the discussions, owing to the heat of the moment. Knowing the two gentlemen in question, I find it difficult to believe that any such apologies could possibly be necessary; but they have asked me to express them on their behalf.
One of the other things which perhaps distinguishes this debate from some of the events which take place in the House is that these people have come from the Pacific, not asking for any change in their status, nor complaining in any way about the administration, but because they have a firm belief in the justice which they feel certain will be accorded to them when they come to the United Kingdom. I have had the privilege of hearing Mr. Rotan express his great faith in the way he was sure he would be treated when he came to the United Kingdom. He expressed it while I was in Fiji and I heard him do so again in the presence of the hon. Lady. I am glad that he will return from his visit to the United Kingdom reinforced in that belief, and that he has had such a happy visit.
Perhaps I should indicate a little of the history of the way in which this matter comes before the House. It starts in 1900, when the British Government issued a licence to exploit phosphate deposits located on Ocean Island by the Pacific Island Company. The licence stated that it:
acquired from the native inhabitants all rights and interests possessed by them
in the phosphate deposits.
In September, 1901, the island was formally annexed for Great Britain and brought under the control of the resident Commissioner of the Gilbert and Ellice Islands Protectorate. The Banabans were paid £50. By 1905, it was apparent that they were not entirely satisfied with the sum paid, and negotiations went on for a considerable time. In 1913, an agreement was worked out under which the Banabans received their first royalty of 6d. per ton on phosphate extracted. The Colony received an equal sum. Those sums have been altered at various periods.
In 1931, the Banabans' royalty went up to 10½d. per ton and the Colony received the difference between revenue and expenditure plus 6d. per ton. In 1947, the royalties were altered to 1s. 3d. per ton for the Banabans, and the Colony got £A24,000 per annum and 1s. 9d. per ton. In 1952, it went up to £A40,000 per annum for the Colony plus 9s. 9d. per ton, but the Banabans' royalty remained at 1s. 3d. In 1958, the Banabans' royalty went up to 1s. 9d. and the Colony's royalty to 23s. per ton. In


1965, the Banabans' royalty increased to 3s. 8d. and the Colony royalty to 29s. Finally, in 1966, the agreement was that the Banabans had 7s. and the Colony 35s. 1d. of the royalty available.
The Banabans lived on Ocean Island until the intervention of the Japanese, who took the islanders away and used them for slave labour during the last war. That led to the problem of what was to happen at the end of the war— whether they were to return to live on the island or go somewhere else. It was eventually arranged that they should go to Rabi Island in the Fiji group, which was bought for them out of their share of the royalties.
There are five things that I want to bring to the Minister's attention. First, I should like her to look at the annual report for 1914–15 on the Gilbert and Ellice Islands Protectorate. On page 275, not only were certain arrangements set out, but it is stated clearly that
The natives also receive compensation for the removal of coconut trees, while a tonnage royalty on phosphate shipped is paid into a trust fund for their use.
The Banabans would like to know just what has happened to the trust fund, because they now perceive clearly that when the phosphates are finished in 1979 they must make provisions for the future. They would like to be sure what has been happening. Whatever has happened to the money paid to them, it certainly has not been spent in riotous living. Anybody who has been to Rabi, and seen the way in which these people live, will not feel that they are following the examples of perhaps some of the people who receive oil royalties, who have large numbers of Cadillacs and live very luxurious lives. I was told when I made inquiries that the total amount of vehicular traffic on the island is one truck, seven tractors and one taxi recently acquired for the use of the Council.
Secondly, I refer to the arrangement in 1913 of a basis of 50 per cent. for the Banabans and 50 per cent. for the Gilbert and Ellice Islands, whereby they each had 6d. This has now turned to a position where the Gilbert and Ellice Islands are getting 16s. 8d. out of every £ of royalties received for the phosphate.
As the Banabans no longer live in the Gilbert and Ellice Islands, but have moved to Fiji, they get nothing from the

Gilbert and Ellice Islands administration and they also believe that this allocation of royalties has enabled the Gilbert and Ellice Islands to make financial arrangements to put aside a reserve fund which will make the position of those who live in the Gilbert and Ellice Islands much more secure man for those now living on Rabi.
The Banabans fully appreciate that the discussions in August and September last year cannot be raised now and that this was expressly agreed during those discussions in London. But they still feel that, when the occasion comes, these matters will be raised on their behalf. Indeed, they hope that, if that event takes place and they are successful in the points they put forward, if there is any deficiency which has to be made up by the British Treasury to the Gilbert and Ellis Islands, the first person who will be arguing with the Treasury on their behalf will be the hon. Lady or any successor in her important and responsible position.
Thirdly, there is the way in which the funds now coming to the Banabans are to be managed. There have been certain difficulties about the arrangements for management of funds in the past and they say that they feel quite confident about any arrangements they may make direct with Her Majesty's Government.
Fourthly, houses have been built on Rabi in the past and doubtless houses will be built in future as a result of this agreement, but some of the difficulties which arise are on the question of the maintenance of the houses and roads because the islanders do not have the resources or the skill to maintain them in the way they would like.
They have another problem in that the cocoanut palms they found when they came to Rabi had been neglected for a long period. They were overgrown with guavos and had been planted about 100 years before. They have been brought back into production, but the useful life of a cocoanut palm is only about 30 years and they feel that the time has come when they will have to do some planting. Then it will be a period of seven or eight years before these cocoanuts come to fruition. These are matters to which the hon. Lady may be able to direct the attention of her right hon. Friend, who may be sending representatives to Rabi.
Finally, there is the question of ownership of Ocean Island. The Banabans would like a clear indication that, when 1979 comes and the phosphate has all been removed, the future of the island will be discussed with them. They hear rumours that it may be required for defence purposes of some kind. However that may be, and whether or not they go back to live on Ocean Island, they would like a clear statement that they are the owners of Ocean Island and that, whatever happens, its future will be discussed with them.
Those are the points that I wanted to raise. I can give an assurance on behalf of a large number of hon. Members on both sides of the House that there is a warm interest here in the problems of the community. Some who are not present tonight have asked me to express their regret at not being here. One, in particular, is my hon. Friend the Member for Plymouth, Devonport (Dame Joan Vickers), who has taken an interest in these visitors not only while they have been here, but also when she has been in Fiji. I am very glad to know that they have enjoyed their visit and that everything has been conducted in such a friendly way, and I ask the two representatives of the community to take my personal good wishes back to the Council when they meet it once again.

12.45 a.m.

The Minister of State for Commonwealth Affairs (Mrs. Judith Hart): I should like, first, to say how much I welcome what the hon. Member for Rye (Mr. Bryant Godman Irvine) has said about the pleasure that many of us have had in meeting representatives of the Banaban community in London during the last two or three weeks. I know that there have been a number of hon. Members on his side of the House, and I ask him to take it from me that there have been an equal number of hon. Members on my side of the House, who have been most concerned about and interested in the welfare of the Banaban community and who would join with me in saying how sorry they are that they cannot be present at this very late hour.
I am sure that it will be understood by the representatives of the Banaban community that although in the House of Commons at this time of night we may

have a relatively small attendance it does not necessarily in any way represent a lack of interest on the part of Members of the House; it is simply that they leave it to one or two of us on both sides of the House to discuss the issue.
Indeed, the Chief Secretary, who was here at the opening of the hon. Gentleman's remarks, has asked me to say how sorry he is that after the long day that he has had on the Finance Bill he has had to depart. But I would tell the hon. Gentleman that the Chief Secretary has been one of the key figures, as he will appreciate, in the agreement that we have been able to reach with the Banaban community, and his departure is certainly not to be represented as lack of sympathy with the issue. On the contrary, he has played a very full part, although an unseen part, in the discussions that we have had in the last two weeks.
I am very grateful to the hon. Member for the very kind things that he said about the atmosphere of the discussions with the representatives of the Banaban community during the last two or three weeks. For my part, they have been among the most pleasant negotiations—if I can use that word—that I have had in my present post, because, clearly, as the hon. Gentleman knows, and as everybody who has met them appreciates, the Banaban representatives are such charming people with a very real point to put to us in London.
During his speech, the hon. Gentleman did not quote the agreement that I told him about in answer to a Parliamentary Question earlier today. It might be as well to put on the record at the beginning what this amounts to. Subject to Parliamentary approval, Her Majesty's Government are prepared to make to the Banaban community an ex gratia special payment of £80,000 in consideration of the effects of phosphate mining upon Ocean Island since 1900. The hon. Gentleman has very rightly outlined, briefly but effectively, the history of phosphate mining on Ocean Island and the effect that this has had on the Banaban community. It is in respect of this that we are making a once-for-all grant of £80,000 to be used under controlled conditions for the economic development of Rabi Island, where at the moment the Banaban community is living.
It is intended that on the basis of the work financed from the grant the


Banabans will be able to apply to the best effect the money they receive from the phosphate royalties, and, of course, we shall be offering technical assistance in order to ensure that the very best advice can be available as to the most effective way in which the ex gratia payment can be used for the economic development of Rabi Island.
I recognise what the hon. Gentleman made clear in his speech, that since the early days of this century, a long time ago, the history of our dealings with the Banabans, who were, as he rightly said, the original inhabitants of Ocean Island, over the extraction of the phosphate of the island has been a chequered one. I think that attitudes have changed very considerably since the first agreements were reached and mining first began in the early 1900s. Looking back over those years I must frankly recognise that by the standards of 1967 the Banabans complain with some justification that the return they derived from the phosphate operations was not enough. In the present settlement we have made a gesture in recognition of this, and I think that the Banaban community itself appreciates that.
One of the problems we met is that after the very acute and difficult wartime experiences of the Banaban community it did not seem sensible, when the time came to put matters right after the end of the war, to re-establish the Banabans on the soil of Ocean Island. It was already, by that time, within measurable distance of being wholly physically removed in the form of phosphate to Australia and New Zealand, and the wise and far-sighted decision was taken then, with the complete concurrence of the leaders of the Banaban community, to abandon Ocean Island for the time being as a homeland, since it was rapidly being made uninhabitable, and to use the benefit of the accumulated phosphate funds to purchase the very pleasant and fertile Island of Rabi in the Fiji Group.
Rabi was to be the permanent home for the Banabans. It was to be the place where they could settle down, where they could bring up their children in peace and stability; it was to be the place where they could go forward to the future with full confidence, and with

none of the physical uncertainties threatening Ocean Island.
Here, I think, I must describe some of the practical difficulties which confront at present the Banaban community in establishing its new life in Rabi Island on a solid foundation. During the later years of the exploitation of Ocean Island, which is no more than a rough circle three miles in diameter, the phosphate operations began to extend to a point where the normal life of the Banaban community based on village gardens and fishing was made impossible. The land the Banabans had used for crops was taken for phosphate mining, and, while the community still maintained its great skills in the art of fishing, it began to derive its sustenance more and more in money terms from phosphate, and less and less from what, in another context, might be called subsistence agriculture.
At present, there are no wages to be earned on Rabi except in a small number of jobs which are provided by the Banaban community itself and financed from its phosphate income. Indeed, the Banabans have had to get back to living off the land and cultivating the main cash crop, copra. This, not surprisingly, the Banabans have found very difficult. Our main aim in reaching the present settlement has been to provide them with technical advice of the highest calibre so that they may be able to organise the economy and establish the agriculture of Rabi on the best possible basis for the future, and this is what we intend to be achieved by the technical assistance which is associated with the grant which we are now providing to them.
At the same time, we aim to provide an easily accessible source of funds from which the first essential development works can be carried out. The cash grant will be devoted not simply to agricultural and economic improvements, but also to the working out of a viable social system so that the community can be helped to come to terms with the new environment of Rabi without undue stresses and strains—in other words, to make its adjustment to the new phase of economic development on Rabi.
I am convinced that in making this provision for the Banabans the Government are taking a really far-reaching step which will do a great deal to remove uneasiness among the Banaban community and to provide it with new hope


and new objectives, so that in Rabi Island the Banabans can build up for themselves a full and satisfying life.
The hon. Gentleman has raised several specific points, one or two of which I have already covered. May I deal with one of them, first of all? He raised the question of the division between the Gilbert and Ellice Islands and the Banaban community of any additional benefits arising from future negotiations with other governments on the benefits from the phosphate industry. In fact, the agreement which we have reached says that the Secretary of State undertakes to take fully into account as sympathetically as possible all the considerations which the Banabans have represented to him during the course of the meetings in London, including in particular the need for development of Rabi to the optimum advantage of the Banabans both now and in the future.
The Banabans accept, in principle, that the division of the phosphate benefits should remain as it is pending a further determination by the Secretary of State after the next round of discussion by the partner Governments, but they reserve to themselves the right to argue for changes in the basic ratio of the division of the totality of the phosphate benefits between the Gilbert and Ellice Islands Colony and the Banabans and not solely in respect of any additional benefits which may become available.
The Secretary of State accepts that at future negotiations the Banabans would be at liberty to present their case in this way, but it should be understood that this carries with it no implication that the Secretary of State would agree to any division which would lead to a reduction in the present rate of tax received by the Gilbert and Ellice Islands Colony.
This is a very difficult problem, and I quote to the hon. Gentleman the nature of the agreement—which I think is a reasonable one—which has been reached between the Banaban Government and my right hon. Friend.
The hon. Gentleman raised another point, which was the question of the Banaban Trust Fund. In fact, royalties are paid on every ton of phosphate exported from Ocean Island straight into the Banaban Trust Fund, established

under the Fiji-Banaban Fund Ordinance. The Banaban community puts up projects for expenditure from the Fund which require the approval of the Fiji Government before they can be put into effect. That is an inevitable proviso because, by the nature of both geography and history, the Banaban community and Rabi Island have to come under the framework of one of our colonial spheres of government, and it is inevitable that they should come under the Fiji Government.
What it is important to realise is that, in respect of the Banaban Trust Fund and in respect of the special grant which we are now making, there has always been and will be full consultation with the Banaban community. Although the grant and the money is canalised through the Government of Fiji, because this is an area of which Rabi Island is a part, nevertheless this does not mean that there are any particular Fiji Government controls over the expenditure which the Banaban community would not be prepared to accept.
As regards the ex gratia grant of £80,000 which we have made in respect of the past of Ocean Island, I would emphasise that my right hon. Friend and I will be maintaining a close interest and concern in the recommendations of the Banaban community itself. The technical assistance which is suggested for the Banaban community on Rabi Island will be a matter for full discussion between the Banaban community and ourselves, and although, for technical reasons, the matter is assigned to the Government of Fiji, I can tell the hon. Gentleman with complete assurance that the steps taken to canalise the money will be a matter for consultation between the Banaban community, the Fiji Government and ourselves here in London.
One of the additional points which the hon. Gentleman raised concerned the continuing Banaban ownership of Ocean Island. I know how important this is to the Banaban community itself. They rightly feel tremendous concern about this particular point. Now it has been made abundantly clear, in official correspondence with the Banabans, that when the phosphates are exhausted, Ocean Island will remain theirs, and that at any time now, and equally after the phosphates are exhausted, the Banabans are at liberty to visit the island. They have


told us that they wish ultimately to achieve the political separation of Ocean Island from the Gilbert and Ellice Islands although Rabi Island is part of Fiji and comes under the administration of the Government of Fiji. But the Banaban community have recognised that as a practical matter nothing can be done about this until the phosphates are exhausted.
I must place on record my appreciation of the good sense shown by the Banabans about this. They have appreciated very fully, I think, the realities presented by the situation. At the same time, I hope that we, for our part, have shown our appreciation of their sentiments and their undoubted emotions and feelings about the whole position.
As they leave London I would like to give them a complete assurance that we will continue to maintain the closest interest in their affairs, as I know hon. Members on both sides of the House will do, including the hon. Gentleman, and

we shall do all in our power to ensure that everything possible is done to develop on Rabi Island a full and fruitful life for the Banaban community and for their children's children in the future.
What matters enormously is that the Banaban community, with the aid of the ex gratiapayment we are making to them and the technical assistance that will go along with the grants, will be able to make successful the task of developing Rabi Island itself, whatever the future of Ocean Island may hold for the people of the community.

The Question having been proposed after half-past Nine o'clock on Wednesday evening and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at two minutes past One o'clock.